When Potential Output Is Less Than Actual Aggregate Output

question 42

Multiple Choice

When potential output is less than actual aggregate output:

• A)the economy faces an inflationary gap.
• B)the SRAS curve intersects the AD curve to the left of the LRAS curve.
• C)the government should follow an expansionary policy to correct the problem.
• D)a decrease in taxes would solve the problem.

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Definitions:

Deindividuation

The loss of self-awareness and self-restraint occurring in group situations that foster arousal and anonymity.

Cognitive Dissonance

The mental discomfort experienced by an individual who holds two or more contradictory beliefs, ideas, or values at the same time, leading to tension and the motivation to reduce the dissonance.

Role-Playing

An educational or therapeutic technique where individuals act out roles in particular scenarios to learn, practice behaviors, or gain insight into themselves.

Attitude Theory

A study within social psychology that examines the structure, formation, and function of attitudes, which are psychological tendencies expressed by evaluating a particular entity with some degree of favor or disfavor.