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:

Military Build-Up

The process of a nation increasing its military capability through the acquisition of weapons and strengthening of forces.

Expansionary Monetary Policy

A policy adopted by a central bank to increase the money supply and decrease interest rates to stimulate economic growth.

New Deal Policies

A series of programs, public work projects, financial reforms, and regulations enacted by President Franklin D. Roosevelt in the United States during the 1930s, aimed at restoring prosperity during the Great Depression.

Monetary Policy

The process by which a central bank, currency board, or monetary authority controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and trust in the currency.