If the GDP Gap Is $400 Billion and AS Is

question 136

True/False

If the GDP gap is $400 billion and AS is upward-sloping,an effective fiscal policy would be to increase aggregate demand by $400 billion.
With an upward-sloping aggregate supply curve,if aggregate demand increased by the amount of the recessionary GDP gap,the economy would fall short of full employment.Some of the increased demand pushes up prices instead of output.To reach full-employment equilibrium,the AD curve must shift by an amount greater than the GDP gap,the amount of the entire AD shortfall.

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Definitions:

Autonomic

Pertaining to the autonomic nervous system, which regulates involuntary bodily functions such as heart rate and digestion.

Blood Vessel

Tubular structures carrying blood through the tissues and organs; a vein, artery, or capillary.

Constrict

To constrict means to narrow or become tighter, often referring to the reduction in diameter of blood vessels or other tubular structures in the body.

Splanchnic Nerve

Nerves that innervate the viscera, transmitting information to and from the visceral organs to the central nervous system.