All else the same, if current output has fallen below potential GDP ________.

A) it is likely that the rate of inflation will increase

B) it is likely that the real interest rate was reduced

C) it is likely that the unemployment rate is less than the natural rate

D) it is likely that the real interest rate was increased

E) none of the above

If most shocks to the economy are aggregate demand shocks, then a policy that stabilizes _____ will

also stabilize economic activity in ________.

A) inflation; short run.

B) unemployment; long run

C) real GDP growth; short run

D) none of the above. Stabilizing policy never works on any macroeconomic variable

From the public's perspective, monetary policy gains credibility when it ________.

A) stabilizes inflation in the short run when faced with positive demand shocks.

B) stabilizes economic activity in the long run when faced with demand shock.

C) transmits the effect of aggregate demand shocks directly to changes in output.

D) enhances the job opportunities of Federal Reserve officials after they leave the central bank.