Suppose There Is a Contractionary Gap and the Economy Is

question 2

Multiple Choice

Suppose there is a contractionary gap and the economy is in equilibrium on the SRAS at an output level beyond the economy's long-run real GDP.In the short run,if the government decreases spending then

• A)output will decrease but prices will rise.
• B)output will increase but prices will fall.
• C)output and prices will fall.
• D)output and prices will rise.