11 Questions
What does a negative output gap of 5% in an economy indicate?
GDP is 5% below potential GDP
In the years between 1970 and 1974, which year has the lowest output gap in absolute value?
1971
According to the interdependence principle, what is the tendency of economic variables?
Rise and fall together
What is a financial shock defined as?
Change in lending conditions that alters the nominal interest rate
If ChatGPT data can predict stock market prices with a 6-month delay, what type of indicator is ChatGPT data?
Leading indicator
In the IS-MP framework of the Fed model, what is expected to happen to the IS curve after a recession?
Leftward shift of the IS curve
According to the IS-MP model, what effect does an increase in real interest rates have on output and the output gap?
IS; lower; increasing
Which event would be considered a spending shock according to the Fed model?
Both a and b
What is used by the Fed model to determine the federal funds rate?
All of the above
What primary reason drives the government to increase spending during a recession?
To shift the IS curve to the right and stimulate economic output
Given an economy with an aggregate expenditure (AE) of $600 billion, if consumption (C) is four times the planned investment (I) and government purchases (G) and net exports (NX) total $150 billion together, what is the value of planned investment?
$75 billion
Test your knowledge on economic output gaps with questions related to understanding negative output gaps, determining the year with the lowest output gap, and interpreting Real and Potential GDP data between 1970 and 1974.
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