If the economy experiences a recessionary gap then:
A. aggregate expenditures exceed the level of spending necessary to provide for full employment.
B. Keynesian economics would recommend a reduction in government spending or an increase in taxes.
C. Keynesian economics would recommend an increase in government spending or a decrease in taxes.
D. the equilibrium level of output and income is above full employment.
Answer: C
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Starting from long-run equilibrium, a large tax cut will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; higher; higher B. expansionary; higher; potential C. recessionary; higher; potential D. recessionary; lower; lower
If an economy experiences a $0.8 trillion increase in investment resulting in an increase in real GDP from $10 trillion to $12 trillion,
a. what is the change in equilibrium expenditure? b. what is the change in autonomous expenditure? c. what is the multiplier? d. how would an increase in the marginal tax rate effect the multiplier?
What is arbitrage? Explain why arbitrage drives the contract price of futures to the price of the underlying asset on the expiration date, for prices above and below the asset price
What will be an ideal response?
For each of the following changes, show the effect on the demand curve and state what will happen to market equilibrium price and quantity in the short run
a. Consumers expect that the price of the good will be higher in the future. b. The price of a substitute good rises. c. Consumer incomes fall, and the good is normal. d. Consumer incomes fall, and the good is inferior. e. A medical report is published showing that this good is hazardous to your health. f. The price of the good rises.