Suppose the Economy Is Experiencing an Inflationary Gap in the Short

question 25

Multiple Choice

Suppose the economy is experiencing an inflationary gap in the short run.The advantage of using a contractionary fiscal policy rather than allowing the economy's natural adjustment process to operate is that

• A)it will reduce the upward pressure on the price level that would otherwise occur.
• B)if private-sector expenditures increase on their own,the policy will stabilize real GDP.
• C)it will shorten what might otherwise be a long recession.
• D)it will reduce the downward pressure on the price level that would otherwise occur.
• E)it will close the output gap.

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Definitions:

End of Year

A point in time marking the completion of a 12-month period, often used for accounting and evaluating annual performance.

Production Cost

Production cost refers to the total expense incurred in the manufacture of a product, including raw materials, labor, and overhead costs.

Rental Payments

Regular payments made by tenants to landlords in exchange for the use of residential or commercial property.

Individual Producers

Entities or persons that create goods or provide services in an economy, ranging from small businesses to large corporations.