A Contractionary Gap Is

question 18

Multiple Choice

A contractionary gap is

• A)the difference between aggregate supply and aggregate demand.
• B)the amount of unwanted inventory accumulation.
• C)the amount by which taxes should be increased in order to put the brakes on run-away inflation.
• D)the amount by which the equilibrium level of real GDP is less than the long-run equilibrium level as given by LRAS.

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Definitions:

Noncooperative Behavior

Actions in a competitive environment where entities act independently without collaboration, potentially leading to less optimal outcomes.

Marginal Costs

The increase in aggregate expenses due to the production of an additional unit of a good or service.

Industry Output

The total production or supply of goods and services produced by a specific industry within a certain period.

Profit

The financial gain achieved when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.