Suppose the Economy Is Initially Operating at Full Employment

question 134

Multiple Choice

Suppose the economy is initially operating at full employment. A reduction in the size of the budget deficit will cause which of the following in the short run?

• A) a recessionary gap.
• B) an increase the price level and a reduction in real GDP.
• C) an increase in the price level with no change in real GDP.
• D) an increase in real GDP and an increase in the price level.

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Definitions:

Radioactivity

The spontaneous emission of particles or radiation from the nucleus of an unstable atom as it becomes more stable.

Atomic Nucleus

The dense, positively charged center of an atom, composed of protons and neutrons.

Radioactive Elements

Elements that spontaneously emit radiation as a result of the decay of their atomic nuclei.

Nobel Prizes

A set of annual international awards bestowed in several categories by Swedish and Norwegian institutions in recognition of academic, cultural, or scientific advances.