What is an expansionary gap of real GDP? How is this expansionary gap eliminated in an economy?


When short-run equilibrium GDP is above potential GDP, there is an expansionary gap in real GDP. A contractionary fiscal policy, which calls for a decrease in government spending or an increase in taxation, is used to decrease aggregate demand in an economy. Such policies eliminate the expansionary or inflationary gap to return the economy to long-run equilibrium.

Economics

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The use of common property resources:

A. reduces positive externalities in many cases. B. reduces negative externalities in many cases. C. leads to positive externalities in many cases. D. leads to negative externalities in many cases.

Economics

The components of consumption expenditure, investment expenditure, government spending, and spending on net exports (exports minus imports) make up _____________________.

a. aggregate demand b. aggregate supply c. economic demand d. economic supply

Economics

Governments can help combat unemployment and inflation because they have the power to

a. decrease aggregate demand to attack unemployment and increase aggregate demand to attack inflation b. increase aggregate supply to attack unemployment and decrease aggregate demand to attack inflation c. increase aggregate supply to attack unemployment and decrease aggregate supply to attack inflation d. increase aggregate demand to attack unemployment and increase aggregate demand to attack inflation e. increase aggregate demand to attack unemployment and decrease aggregate demand to attack inflation

Economics

Which of the following quotations illustrates the Tragedy of the Commons?

a. "A bird in the hand is worth two in the bush.". b. "The only difference between the rich and other people is that the rich have more money.". c. "What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others.". d. "Anyone who is not a socialist before he is 30 has no heart; anyone who is still a socialist after he is 30 has no head.".

Economics