Which of the Following Is True of a Contractionary Gap

question 89

Multiple Choice

Which of the following is true of a contractionary gap?

• A)It develops when the expected price level is less than the actual price level.
• B)In the long run,this gap will close when resource suppliers negotiate lower resource payments.
• C)It measures the amount by which actual output is greater than the economy's potential output.
• D)In the long run,this gap will close when the short-run aggregate supply curve shifts rightward.
• E)In the long run,this gap will close when the aggregate demand curve shifts rightward.

---

Definitions:

Keynesian Theory

Keynesian Theory is an economic theory stating that government intervention through fiscal and monetary policy is necessary to manage aggregate demand and address economic cycles.

Government Intervention

Actions taken by a government to affect the economy, which can include regulations, subsidies, tariffs, and monetary policies.

Expected Rate Of Profit

The anticipated return on an investment, taking into account the risk and time value of money.

Classical Theory

Refers to an economic theory that asserts that the economy is self-regulating, markets are best left alone without government intervention, and supply creates its own demand.