Which of the following occurs when an expansionary gap is closed in the long run by the action of firms?
a. Output decreases, and the price level increases.
b. Inflation decreases, and unemployment rises.
c. Both the equilibrium output and the price level increase.
d. Both the equilibrium output and the price level decrease.
e. Inflation rises, and unemployment decreases
Question 2
If the Fed decreases the money supply, gross domestic product:
a. increases by the same amount as the increase in the interest rate.
b. decreases by a greater amount than the increase in the interest rate because of the multiplier.
c. decreases by the same amount as the decrease in investment.
d. decreases by a greater amount than the decrease in investment because of the multiplier.
e. decreases by a lesser amount than the decrease in investment because of the multiplier.
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