Refer to the Figure Below

question 32

Multiple Choice

Refer to the figure below.Suppose the economy is in a short-run equilibrium at output Y₃ and inflation rate ₂.The economy is currently experiencing ______, and the correct fiscal policy response to this situation, to return the economy to potential GDP, is to ______.

• A)a recessionary gap; increase government spending
• B)an expansionary gap; decrease government spending
• C)a recessionary gap; increase taxes
• D)an expansionary gap; decrease taxes

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Definitions:

Drug Education

Educational programs aimed at providing information about drug use and misuse, with the goal of preventing drug addiction and promoting healthy decision-making.

Price Elasticity of Supply

A measure of how much the quantity supplied of a good responds to a change in the price of that good.

Government Program

An initiative undertaken by a government to address public needs in areas such as health, education, and welfare.

Market Price

Is the current price at which an asset or service can be bought or sold in a marketplace.