If Short-Run Equilibrium Output Equals 20,000 and Potential Output (Y*)equals

question 38

Multiple Choice

If short-run equilibrium output equals 20,000 and potential output (Y*) equals 25,000, then this economy has a(n) ________ gap that can be closed by ________.

• A)recessionary; increasing taxes
• B)expansionary; increasing transfer payments
• C)expansionary; increasing government purchases
• D)recessionary; increasing government purchases

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Definitions:

Long-Run Aggregate-Supply

The total quantity of goods and services that producers in an economy are willing and able to supply at a full employment level, regardless of the price level, in the long term.

Long-Run Phillips

Describes the relationship between unemployment and inflation over a longer period, suggesting that in the long run, there is no trade-off between inflation and unemployment.

Natural Rate

The long-term rate of unemployment or economic output at which the economy stabilizes, without causing inflation.

Monetary Policy

The process by which the central bank or monetary authority of a country controls the supply of money, often targeting interest rates to promote economic growth and stability.