Suppose an Economy Exhibits a Large Unexpected Increase in Productivity

Multiple Choice

Suppose an economy exhibits a large unexpected increase in productivity growth that lasts for a decade.However,monetary policymakers are slow to recognize that the change is to potential,not current,output,and interpret the increase in output as a boom that leads current to exceed potential output.In this scenario,policymakers believe that __________ pressures are building and incorrectly respond by __________ interest rates,sending the economy into a(n) __________ gap.

A) inflationary;raising;recessionary
B) inflationary;reducing;recessionary
C) recessionary;raising;expansionary
D) recessionary;reducing;recessionary
E) Not enough information is given.