Starting from Long-Run Equilibrium, a Large Decrease in Government Purchases

question 5

Multiple Choice

Starting from long-run equilibrium, a large decrease 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; lower; potential
• C)expansionary; higher; higher
• D)recessionary; higher; potential

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Definitions:

Cumulative Cash Surplus

The total amount of cash that a business has generated over a certain period, after accounting for all cash inflows and outflows.

Financial Foreclosure

The process by which a lender takes possession of a property used as collateral for a loan that is in default.

Net Cash Flow

measures the difference between a company's cash inflows and outflows within a specific period, indicating its overall liquidity position.

Cumulative Surplus

The total accumulated excess of income over expenses and losses over a period.