Does an Expansionary Gap or a Recessionary Gap Exist If

question 173

Multiple Choice

Does an expansionary gap or a recessionary gap exist if short-run output is $20.0 trillion and potential output is $21.0 trillion?

• A) an expansionary gap
• B) a recessionary gap
• C) both an expansionary gap and a recessionary gap
• D) neither an expansionary gap nor a recessionary gap
• E) The actual gap is equal to potential output.

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Definitions:

Efficient Market Hypothesis

A theory suggesting that at any given time, securities prices reflect all available information, meaning it's impossible to consistently achieve higher returns.

Superior Returns

Returns that exceed the performance of a benchmark index or the average returns of a particular investment category.

Neglected-firm Effect

A theory suggesting that lesser-known, smaller companies can provide higher returns than their larger counterparts due to lack of analyst coverage.

Excess Returns

Returns on an investment that exceed a benchmark or average return, indicating higher-than-expected performance.