Starting from long-run equilibrium, a large increase in government purchases will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; higher; potential
B. recessionary; higher; potential
C. recessionary; lower; lower
D. expansionary; higher; higher
Answer: A
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Which term describes the situation in which a country that can consume more than it can produce as a result of specialization and trade?
a. comparative advantage b. absolute advantage c. gain from trade d. trade advantage
When the spending of consumers, businesses, government, and foreigners (net exports) is less than the current level of output, Keynesian analysis indicates that
a. the economy's output will fall short of its potential. b. prices will rise. c. equilibrium real GDP will increase. d. inventories will decline.
Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills is called
a. the natural rate of unemployment. b. cyclical unemployment. c. structural unemployment. d. frictional unemployment.
Exhibit 1A-7 Straight line relationship
According to Exhibit 1A-7, the relationship between annual income and air-travel expenditures is:
A. direct. B. inverse. C. complex. D. independent.