Question

Match the quadrant letter of the economy with the description/diagnosis. Beware of "incorrect" descriptions!

Column A
1.	Area "A":
2.	Area "B":
3.	Area "C":
4.	Area "D":
5.	Area "E":

Column B
a.This area represents low prices and lots of growth and jobs. Unattainable but a good goal.
b.In a Keynesian perspective, the economy is in a recessionary gap. Firms are hurting but can't smoothly lower costs. Prices are stuck while GDP falls. Firms will go out of business before they can lower wages. Gov't must subsidize a recovery with Fiscal policy.
c.This is seen in the traditional "Classical" perspective. Demand is low but the factories are cranking out products like mad--GDP high. Inventories are piling up. Unemployment is low and people are saving money, not buying much. This is a classic case of Say's Law.
d.Stagflation. Input costs are high. Demand-pull inflation. Find cheaper resources. Increase interest rates. Push short-term aggregate supply to the right.
e.Stagflation. Input costs are high. Prices rising. Cost-push inflation. Find cheaper resources. Reduce regulations. Push short-term aggregate supply to the right.
f.Low demand. Stimulate the economy with cheap money. Lower interest rates /taxes; buy bonds; more gov't jobs. This is seen in the traditional "Classical" perspective.
g.Economy's too hot! Factories are are maxed out and workers are working overtime, GDP growing. Need to buy bonds, make money cheap, lower interest rates.
h.Economy's too hot! Factories are are maxed out and workers are working overtime, prices rising. Need to sell bonds, increase reserve ratio & %, raise taxes.
i.The economy is going to pot. A Marxist revolution is taking place. Take over private industry and make all industry a state function.

Answer 1

Column A	Column B
A	e: this is stagflation situation where price has increased and quantity declined.
B	b
C	f
D	a
E	H