1. (Figure: Actual and Natural Rates of Unemployment) Look at the figure Actual and Natural Rates of Unemployment. In 2014 the output gap was:
• positive
• negative
• zero
• impossible to determine without more information
2. If potential output is higher than actual output, then the unemployment rate is:
• zero.
• above the natural rate.
• equal to the natural rate.
• below the natural rate.
3. (Figure: Expected Inflation and the Short-Run Phillips Curve) Look at the figure Expected Inflation and the Short-Run Phillips Curve. Suppose that this economy has an unemployment rate of 6%, inflation of 2%, and an expectation of 2% future inflation. If the central bank decreases the money supply such that aggregate demand shifts to the left and unemployment rises to 8%, then inflation will:
• rise to 4%.
• not change.
• rise to 2%.
• fall to zero.