Question
In the monetary transmission mechanism, how does a policy rate cut affect GDP and inflation?
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Answer
It lowers market rates, boosting demand, GDP, and inflation.
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Question
How do leading indicators differ from coincident and lagging indicators in timing relative to the economy?
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Answer
Leading turn before, coincident with, and lagging after the economy.
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Question
Why does a negative output gap typically justify expansionary policy?
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Answer
It signals economic slack and recessionary conditions.
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Question
Why does a positive output gap raise inflation risk?
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Answer
Actual GDP exceeds potential GDP, indicating overheating.
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