Suppose an Economy Exhibits a Large Unexpected Decrease in Productivity

Multiple Choice

Suppose an economy exhibits a large unexpected decrease 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 decrease in output as a recession that leads current to fall below 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;inflationary
B) inflationary;reducing;inflationary
C) inflationary;raising;recessionary
D) recessionary;reducing;inflationary
E) Not enough information is given.