The central bank will make its interest rate decisions solely by considering whether actual inflation goes above or below the target

The central bank will decrease the interest rate if there is a demand shock which reduces aggregate demand

The central bank will increase the interest rate if there is a supply shock which permanently reduces aggregate supply

The central bank may not increase the interest rate if there is a supply shock which temporarily reduces aggregate supply

Trend GDP shows what the path of potential GDP would be if it grew steadily

A trough occurs at the end of a period of contraction

Trend GDP may be below potential GDP in some quarters and above in others

Trend GDP may be below potential GDP in some quarters and above in others

If actual output falls below the potential level of output

If actual output falls below the trend level of output

If actual output falls

If actual output falls for two consecutive quarters of a year

They used the term trade cycles, not business cycles

They knew cycles existed because of fluctuations in measured real GDP

They believed the typical cycle lasted between seven and eleven years.

They suggested that one cause of cycles was the activity of sunspots on the sun

The most important cause of demand shocks is changes in the money stock

The demand for money is interest elastic

Output departs at times from potential output because of demand shocks

When there is a recessionary gap, flexible wages will return the labour market to equilibrium fairly quickly