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:

Financial Reporting

Creating declarations that unveil a company's economic position to its management, investors, and government agencies.

Consolidated Financial Statements

Financial statements that combine the financial information of a parent company and its subsidiaries into one set of statements as if they were a single entity.

Capital Markets

Financial markets for buying and selling equity and debt instruments, serving as a platform for long-term funding for public and private entities.