-In the Above Figure, If the Relevant Aggregate Demand Curve

question 361

Multiple Choice

-In the above figure, if the relevant aggregate demand curve is AD₂, what type of gap exists and how large is it?

• A) inflationary gap of $500 billion
• B) inflationary gap of $1 trillion
• C) recessionary gap of $1 trillion
• D) recessionary gap of $500 billion

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Definitions:

Elastic Currency

A currency system that can expand or contract in supply to accommodate economic needs and stabilize the economy.

Secondary Reserves

Liquid assets held by financial institutions that are not used for primary obligations but can be quickly converted to cash for emergency needs.

U.S. Government Securities

Financial instruments issued by the United States Department of the Treasury to finance federal government's expenditures.

Vault Cash

Currency and coins held by a bank in its vault and used to satisfy the bank's reserve requirements.