Use the Following to Answer Questions

question 255

Multiple Choice

Use the following to answer questions :
Scenario: Fiscal Policy
Consider the economy of Arcadia. Its households spend 75% of increases in their income. There are no taxes and no foreign trade. Its currency is the arc. Potential output is 600 billion arcs.
-(Scenario: Fiscal Policy) Look at the scenario Fiscal Policy. Suppose actual real GDP in Arcadia is 500 billion arcs. This economy has:

• A)a recessionary gap.
• B)production at the full employment level.
• C)an inflationary gap.
• D)a liquidity trap.

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