Suppose the Economy Is Initially Experiencing a Recessionary Gap

question 89

Multiple Choice

Suppose the economy is initially experiencing a recessionary gap. A reduction in the size of the budget deficit will cause which of the following in the short run?

• A) a reduction in the size of the recessionary gap and increase in real GDP.
• B) an increase in the size of the recessionary gap and decrease in real GDP.
• C) an increase in inflation and increase in aggregate supply.
• D) an inflationary gap.

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Definitions:

Additional Education

Refers to further formal or informal learning undertaken after completing a level of education, to enhance skills or gain new knowledge.

Workforce

The pool of individuals in a country or company eligible for and engaged in employment, including both employees and those seeking employment.

Discretionary Income

The amount of an individual's income left for spending, investing, or saving after taxes and personal necessities have been paid.

Fiscal Policy

Government policies related to taxation and spending that are used to influence a country's economic conditions.