The Diagram Below Is for a Closed Economy Which Begins

question 51

Multiple Choice

The diagram below is for a closed economy which begins in long-run equilibrium at Y* and . FIGURE 31-3 Refer to Figure 31-3.Suppose the government implements an expansionary fiscal policy which increases the budget deficit.The initial effect of this policy is the opening of a(n) ________ gap,and a new short-run equilibrium with a price level of ________ and real GDP of ________.

• A)recessionary; P₁; Y₂
• B)inflationary; P₁; Y*
• C)inflationary; P₂; Y*
• D)inflationary; P₁; Y₁
• E)recessionary; P₀; Y*

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