An inflationary GDP gap is equal to the
A. Difference between equilibrium GDP and full-employment GDP.
B. Difference between potential GDP and full-employment GDP.
C. Increase in the price level caused by the inflation.
D. Recessionary GDP gap.
Answer: A
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Based on the figure below. Starting from long-run equilibrium at point C, a tax increase that decreases aggregate demand from AD1 to AD will lead to a short-run equilibrium at point ________ and eventually to a long-run equilibrium at point ________, if left to self-correcting tendencies.
A. D; C B. D; B C. A; B D. B; C
GDP can be measured in terms of expenditures but not income, since income is subject to taxation
a. True b. False Indicate whether the statement is true or false
The demand curve shifts rightward from D0 to D1 when the U.S. interest rate ________ and foreign interest rates are unchanged. The demand curve shifts rightward from D0 to D1 when the expected future exchange rate ________
A) falls; rises B) rises; rises C) falls; falls D) rises; falls E) None of the above answers is correct because the factors mentioned lead to movements along the demand curve and not to shifts of the demand curve.
Suppose the economy is in an equilibrium in which real GDP is less than potential GDP. To increase real GDP, the government can use a fiscal stimulus of
A) increasing taxes only. B) decreasing government expenditure only. C) decreasing taxes and/or increasing government expenditure. D) decreasing government expenditure and simultaneously increasing taxes. E) increasing the quantity of money.