Starting from long-run equilibrium, a large decrease in government purchases will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; lower; potential
B. expansionary; higher; potential
C. recessionary; lower; potential
D. recessionary; lower; lower
Answer: C
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Refer to Figure 24-1. Ceteris paribus, a decrease in government spending would be represented by a movement from
A) AD1 to AD2. B) AD2 to AD1. C) point A to point B. D) point B to point A.
Deflation:
a. is often a result of increases in the money supply. b. is good for borrowers, but bad for lenders. c. is good for lenders, but bad for borrowers. d. cannot occur under a bimetallic standard.
A significant example of a temporary tax cut was the one announced in 1992 by President George H. W. Bush. The effect of that tax cut on consumer spending and aggregate demand was
a. zero. b. likely smaller than if the cut had been permanent. c. likely about the same as if the cut had been permanent. d. likely larger than if the cut had been permanent.
An increase in consumer income will lead to an increase in supply.
a. true b. false