Question

Question 1 0.75 pts The table below describes output and interest rates in Westeros from 2012 to 2015. Which of the following events best explains the movement in the economy between 2013 and 2014? Year Interest Rate Output Gap 0.03% 2012 4.2% 2013 -1.12% 3.6% 2.1% 2014 -0.74% 2015 -0.21% 2.4% The central bank begins conducting expansionary monetary policy. O Investor confidence begins declining. The economy begins the slow recovery to steady-state equilibrium. The central bank sells government bonds.

Answer 1

During this period the output gap is declining. this implies that actual output is getting closer to full employment which means aggregate demand must be shifting to the right. Interest rate is also decreasing..this is the reason for increase in aggregate demand which can take place through an increase in investment. Therefore we conclude that there must be an expansionary monetary policy that decreases interest rate and increases investment.

Select first option