If a Shock Results in a Positive Output Gap and the Government's

Multiple Choice

If a shock results in a positive output gap and the government's policy choice is to do nothing

A) the government will immediately implement expansionary fiscal policy.
B) the central bank will immediately increase the money supply and close the output gap.
C) it will be detrimental to the economy.
D) the economy will be prevented from returning to equilibrium.
E) the price level will fall, the interest rate will fall, and output will rise, closing the gap.