What Is the Short-Run Effect of Increased Deficit Spending on an Economy

question 92

Multiple Choice

What is the short-run effect of increased deficit spending on an economy experiencing a recessionary gap?

• A) Aggregate demand increases, and the gap closes.
• B) Aggregate supply increases, closing the gap.
• C) Aggregate demand decreases, and the gap widens.
• D) Aggregate demand will increase, creating an inflationary gap.

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Definitions:

Mark-up

The additional sum included in the goods' cost to cover overhead expenses and gain, represented as a portion of the total cost.

Selling Price

The amount of money for which a seller is willing to sell their product or service.

Cost

The amount that is spent to buy or produce something, including the resources and materials used.

Overhead Expenses

Costs associated with running a business that are not directly tied to producing goods or services, such as rent and utilities.