If Potential Output Equals $8 Billion and Actual Output Equals

question 5

Multiple Choice

If potential output equals $8 billion and actual output equals $9 billion,then this economy has a(n)

• A) budget deficit.
• B) trade deficit.
• C) expansionary gap.
• D) recessionary gap.
• E) value-added gap.

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Definitions:

Free-Rider Problem

A situation where individuals consume a public good without contributing to its cost, leading to underprovision or overuse.

Coase Theorem

A principle that asserts that if property rights are clearly defined and transaction costs are low, private negotiations will lead to the efficient resolution of disputes regardless of initial distribution of rights.

Property Rights

Legal rights that determine the ownership and use of resources such as land, buildings, and intellectual property.

Negatively Affects

To cause harm or reduction in quality, performance, or value.