a. right/left a recessionary/ inflationary

b. actual/expected/potential GDP increasing/ decreasing fall/rise Rise/fall

c. AS/AD AS/AD expectational and supply-shock/out-gap and potential /out-gap and expectational actual/expected/potential

d. traditional/ monetary/ normal/fiscal

e. validation/contraction/policy measurements/ expectations/ regulation

f. higher wagesew technology/recession

Fill in the blanks to make the following statements correct. a. Suppose the economy is initially at potential GDP (Y*) and then there is a sudden increase in the demand for Canadian exports. The AD curve shifts to the and opens gap. b. With an inflationary gap, the economy is operating where GDP is above V. In an effort to maintain the output gap, the Bank of Canada may choose to validate the inflation by the interest rate and allowing the money supply to . The actual inflation rate will c. The alternative policy response to an inflationary gap is to not validate the inflation. The curve stops shifting upward. The curve shifts upward due to rising wages caused by inflation. Real GDP eventually returns to GDP at a higher d. Sustained inflation can be said to be a phenomenon. e. Reducing a sustained inflation requires that monetary be stopped. Inflation will persist, however, until of continued inflation are revised downward. f. The cost of disinflation is the cost of the that is generated in the process. measurements expectations regulation