Choose the Correct Statement

question 96

Multiple Choice

Choose the correct statement.

• A)Contractionary fiscal policy can eliminate inflationary pressure.
• B)Eliminating an inflationary gap is very simple - calculate the size of the gap and the size of the multiplier, then change government expenditure for an immediate decrease in real GDP.
• C)When an economy is in an above full-employment equilibrium, an equal decrease in government expenditure and autonomous taxes cannot return the economy to full employment.
• D)When an economy is in an above full-employment equilibrium, an increase in taxes will decrease aggregate demand, but because the autonomous tax multiplier is smaller than the government expenditure multiplier, the economy will not return to potential GDP.
• E)All of the above

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Definitions:

Short Run

A period in economics during which the quantities of at least one input, such as plant size, cannot be changed.

Variable

An element, feature, or factor that is liable to vary or change.

Marginal Product

This measures the additional output that is produced by adding one more unit of a specific input, keeping all other inputs constant.

Total Output

The entire quantity of goods or services produced by an individual, firm, industry, or economy within a specified period.