If the Economy Is Experiencing an Inflationary Gap, an Increase

question 39

Multiple Choice

If the economy is experiencing an inflationary gap, an increase in the budget surplus

• A) will reduce the size of the inflationary gap.
• B) will increase the size of the inflationary gap.
• C) will cause an increase in inflation and increase aggregate supply.
• D) will increase aggregate demand and will increase the price level.

---

Definitions:

Future Rate

An expected rate for a financial instrument or an economic variable at a specified future date.

Fixed Exchange Rate

A government policy to maintain the value of its currency at a set rate against another currency or a basket of currencies.

Covariance

A measure used in statistics to determine how much two random variables change together, indicating the direction of their linear relationship.

DAX Stock Market

The Deutscher Aktienindex (DAX), a major stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange.