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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The study of why an economy's production capacity increases over time is the subject of growth economics.
Answer the following statement true (T) or false (F)
When demand is elastic, the marginal revenue resulting from a decrease in price is:
A) positive. B) zero. C) negative. D) cannot be determined without more information.
The real interest rate for investments reflects not only the short-term real interest rate set by the central bank, but also the financial frictions
When the policy rate has hit the floor of zero, to stimulate the economy at given inflation rates, policymakers can A) lower the financial frictions. B) lower the short-term real interest rate. C) lower both the short-term real interest rate and the financial frictions. D) lower the policy rate.
Suppose that the economy is at full employment and aggregate demand increases by more than it is anticipated to increase. Other things remaining the same, ________.
A. long-run aggregate supply decreases B. real GDP remains at potential GDP C. real GDP increases above potential GDP D. real GDP decreases below potential GDP