A . Explain why an inflationary gap is a problem. b. Explain the Keynesian view of how the government can close an inflationary gap
a . An inflationary gap exists when expenditures are too large to keep the economy at full-employment
with stable prices. Inflation will occur.
b. If private spending by firms and households is too great, the government can close an inflationary gap
by creating a surplus budget by reducing its own spending by enough to offset the excess.
You might also like to view...
Major increases in oil prices in the mid-1970s and in the late 1970s created:
A. beneficial aggregate demand shocks. B. adverse aggregate supply shocks. C. an increase in long-run aggregate supply. D. a reduction in the unemployment rate.
Fixed costs of entry create an advantage for potential entrants since incumbents have already made these expenditures while potential entrants can avoid these costs
Indicate whether the statement is true or false
Suppose the Fed announced a policy of rapid growth in the money supply in 2004, but then put the brakes on money expansion without any announcement. If in 2005, Fed officials announce again that an expansion is planned, it is most likely that:
a. people will believe in the announcement since the conditions that created a need for the expansion are probably still in effect. b. people will believe in the announcement since they consider that having failed to implement the expansion previously, the Fed still plans to do so. c. people will not believe in the announcement since they consider that the conditions that created a need for the expansion must have changed in the meantime. d. people will not believe in the announcement since they consider that having failed to implement the expansion previously, the Fed will probably fail again e. there will be further uncertainty about the Fed following through on the policies it announces.
If exports rose and imports fell, a. AD would decrease
b. AD would increase. c. AD would be unaffected. d. AD could either increase or decrease.