Suppose the Economy Is Initially Experiencing a Recessionary Gap

question 105

Multiple Choice

Suppose the economy is initially experiencing a recessionary gap. An increase in the size of the budget deficit will

• A) increase the size of the recessionary gap.
• B) reduce the size of the recessionary gap.
• C) lead to an increase in prices with no increase in real GDP.
• D) lead to a decrease in prices with an increase in real GDP.

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Definitions:

Managerial Incentives

Incentives designed to motivate managers to make decisions that align with the owner's or shareholders' interests.

Pure Monopolist

A single supplier in a market that controls all the goods or services, with no close substitutes and high barriers to entry.

Socially Optimal

A condition or point at which the social welfare is maximized, considering the benefits and costs to society as a whole.

Regulatory Commission

A government agency responsible for controlling and supervising specific industries to enforce standards and laws for public safety and welfare.