Assume the Economy Is Initially in Equilibrium with Real GDP

question 17

Multiple Choice

Assume the economy is initially in equilibrium with real GDP equal to potential GDP.Other things equal,if the economy enters a recession,automatic stabilizers

• A) reduce the magnitude of the multiplier and reduce the size of the decline in real GDP.
• B) reduce the decline in investment expenditures and therefore increase the real short-term interest rate.
• C) cause any decrease in real GDP to be offset by an equal decrease in the inflation rate.
• D) raise the interest rate to prevent the output gap from falling below equilibrium.