Suppose Output Exceeds Potential Output and Contractionary Fiscal Policy Is

question 208

Multiple Choice

Suppose output exceeds potential output and contractionary fiscal policy is enacted. According to the AS/AD model, in the long run, this fiscal policy will produce:

• A)a lower output level and a lower price level than would have occurred if no action were taken.
• B)a lower price level than would otherwise have occurred if no action were taken.
• C)a lower output level than would otherwise have occurred if no action were taken.
• D)neither a lower price level nor a lower output level than would otherwise have occurred if no action were taken.

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