Which of the following changes could create a more positive output gap?
(i) The U.S. dollar appreciates.
(ii) The U.S. dollar depreciates.
(iii) Trading partners reduce tariffs on U.S. exports.
(iv) Monetary policy actions boost the economy.
A)(i) only
B)(ii) only
C)(ii), (iii), and (iv)
D)(iv) only

Question

Quizplus · Accepted Answer

A positive output gap occurs when actual output is greater than potential output, indicating an economy operating above its sustainable capacity. Depreciation of the U.S. dollar makes U.S. exports cheaper and more competitive abroad, increasing demand for U.S. goods (ii). If trading partners reduce tariffs on U.S. exports, it similarly increases demand for U.S. goods by making them more affordable and competitive in foreign markets (iii). Monetary policy actions that boost the economy, such as lowering interest rates or increasing money supply, can stimulate economic activity, leading to higher demand and output (iv). An appreciation of the U.S. dollar (i) would likely have the opposite effect, making U.S. exports more expensive and reducing foreign demand.

Which of the Following Changes Could Create a More Positive