a$.$ Predict how each change will affect the output gap.

Make the output gap more positive Make the output gap more negative Not affect the output gap

Answer Bank

A$.$ The Chinese government eliminates the tariffs it charges on goods exported from the United States.

B$.$ The implementation of artificial intelligence in manufacturing has led to faster than expected productivity growth, which results in decreasing production casts.

C$.$ A financial crisis makes banks extremely reluctant to take on risky loans without charging an exiremely high risk premium.

D$.$ Businesses' confidence about the future of the economy falls, which leads them to scrap planned investment projects.

E$.$ The Federal Reserve raises the federal funds rate from $4\%$ to $5\%.$

F$.$ The federal government cuts the corporate tax rate, a move applauded by business executives, who say that it will make more investment opportunities profitable.

b$.$ Predict how each change will affect inflation.