Suppose the Economy Is Operating Below Potential Output

question 105

Multiple Choice

Suppose the economy is operating below potential output. If policy makers try to avoid a budget deficit by raising taxes or reducing government spending, these actions would

• A) increase inflation.
• B) help pull an economy out of a depression.
• C) make a recession worse.
• D) negate the multiplier effect.

---

Definitions:

Zero-sum Game

A situation in which one party's gain is exactly balanced by another party's loss, resulting in a net change of zero.

Forgiveness

The process of letting go of resentment, anger, or vengeance toward someone who has wronged you, often considered a step towards healing and reconciliation.

Angry

Experiencing or showing strong feelings of displeasure, hostility, or antagonism.

Retribution

Retribution is the principle of justice based on punishment for wrongdoing, often viewed as deserved or morally right retaliation.