The Diagram Below Is for a Closed Economy Which Begins

question 55

Multiple Choice

The diagram below is for a closed economy which begins in long-run equilibrium at Y* and P0.
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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