Suppose the Economy Is Experiencing an Inflationary Gap in the Short

question 25

Multiple Choice

Suppose the economy is experiencing an inflationary gap in the short run.The advantage of using a contractionary fiscal policy rather than allowing the economy's natural adjustment process to operate is that

• A)it will reduce the upward pressure on the price level that would otherwise occur.
• B)if private-sector expenditures increase on their own,the policy will stabilize real GDP.
• C)it will shorten what might otherwise be a long recession.
• D)it will reduce the downward pressure on the price level that would otherwise occur.
• E)it will close the output gap.

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Definitions:

Sodium Propanoate

A sodium salt of propanoic acid, used as a food preservative with the formula CH3CH2COONa.

Hydrobromic Acid

A strong acid consisting of hydrogen bromide in water, used in the synthesis of bromine compounds.

Benzoic Acid

An aromatic carboxylic acid with the formula C6H5COOH, used in the production of numerous industrial chemicals and as a food preservative.

Deprotonation

The removal of a proton (H+) from a molecule, resulting in the formation of its conjugate base.