In the Short Run, a Fiscal Policy Action That Results

question 119

Multiple Choice

In the short run, a fiscal policy action that results in a reduction in the size of the budget deficit will cause

• A) an increase in real GDP with stable prices if the economy was below full employment.
• B) a reduction in real GDP with falling prices if the economy was below or at full employment.
• C) an inflationary gap if the economy was initially operating at full employment.
• D) an inflationary gap if the economy was initially operating below full employment.

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