For each of the following, diagnose which type of economic shock has hit the economy:

a. You hear a radio report noting that the recession appears to have ended. It says that while output remains less than potential, the output gap has improved from −7% to −5%. The host is interviewing an economist who states, “The change in GDP isn’t terribly surprising, as the Federal Reserve continues to cut the real interest rate.”

b. The latest inflation report indicates an unexpected uptick in inflation even though output remains below potential output.

c. The real interest rate has been stable over the past few quarters, yet output has grown rapidly, leading to a more positive output gap.