When an Economy's Actual Output Is Smaller Than Its Potential

question 14

Multiple Choice

When an economy's actual output is smaller than its potential at some point in time, we say that it is experiencing:

• A) a positive output gap.
• B) a negative output gap.
• C) inflation.
• D) deflation.

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Definitions:

Barter

A system of exchange where participants in a transaction directly exchange goods or services for other goods or services without using a medium of exchange, such as money.

Benevolence

the inclination to perform kind, charitable acts towards others without expecting anything in return.

Circular-Flow Diagram

A visual model of the economy showing the interactions between households and businesses through the markets for products and resources.

Firms

Business organizations that use resources to produce goods or services for profit.