Suppose a Recessionary Gap Is Closed in the Long Run

question 92

Multiple Choice

Suppose a recessionary gap is closed in the long run, by means of a passive policy.How will output and price level be affected?  

• A) Output will increase, and price level will increase. 
• B) Output will increase, and price level will decrease. 
• C) Output will decrease, and price level will increase. 
• D) Output will decrease, and price level will decrease.

---

Definitions:

IPO

Initial Public Offering is the process by which a private company becomes publicly traded by offering its shares for sale to the general public for the first time.

Shelf Prospectus System

A regulatory provision allowing issuers to pre-register a new issue of securities, which can be sold at any time within a specified period.

Underwriting Expenses

Costs associated with assessing and accepting risk, such as those incurred by insurers or investment banks during the offering process of securities.

Bond Refunding

The process of refinancing an existing bond issue by raising new debt at lower interest rates to pay off the old bonds before they mature.