Suppose the Economy Is Initially Operating at Full Employment

question 82

Multiple Choice

Suppose the economy is initially operating at full employment. A reduction in the size of the budget deficit will cause which of the following in the long run?

• A) a recessionary gap
• B) a reduction in real GDP
• C) an inflationary gap
• D) none of the above

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Definitions:

Human Wants

The desires and needs of individuals or society that drive demand for products, services, and resources.

Opportunity Cost

The forgone benefit that would have been derived by an option not chosen.

Iraq

A country located in Western Asia, known for its rich history and as a significant oil producer.

Full Production

The level of production at which an economy or firm operates at maximum capacity, utilizing all available resources efficiently without waste.