The economy pictured in the figure has a(n) ________ gap with a short-run equilibrium combination of inflation and output indicated by point ________. 
A. recessionary; A
B. recessionary; C
C. recessionary; B
D. expansionary; A
Answer: D
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An increase in autonomous taxes
A) increases autonomous planned spending by an equal amount. B) decreases autonomous planned spending by an equal amount. C) increases consumption by that amount times the marginal propensity to consume. D) decreases saving by that amount times the marginal propensity to save.
The substitution effect is thought to dominate the behavior of low-wage workers
a. True b. False Indicate whether the statement is true or false
If asset A is a 30-year U.S. Treasury bond yielding 9 percent and asset B is a 30-year corporate bond issued by General Motors that also yields 9 percent, risk averse investors would
A) prefer asset A. B) prefer asset B. C) be indifferent between the two assets. D) differ according to their rate of time preference.
The long-run effect of reducing the government budget deficit would be
a. a higher price level and a lower level of output b. a lower price level and a lower level of output c. a higher price level and a higher level of output d. a higher price level with unchanged output e. a lower price level with unchanged output