An output (recessionary) gap occurs when Actual output (GDP) falls below potenti
ID: 1092125 • Letter: A
Question
An output (recessionary) gap occurs when
Actual output (GDP) falls below potential output.
Taxes on corporate profits undermine incentives to invest.
Import tariffs reduce consumption.
Actual output (GDP) exceeds potential output.
To address an output (recessionary) gap, the appropriate fiscal policy would be
A. An increase in government spending.
B. An increase in interest rates.
C. An increase in the payroll tax rate.
D. An increase in the corporate profit tax rate.
A.Actual output (GDP) falls below potential output.
B.Taxes on corporate profits undermine incentives to invest.
C.Import tariffs reduce consumption.
D.Actual output (GDP) exceeds potential output.
Explanation / Answer
A. Actual output (GDP) falls below potential output.
C. An increase in the payroll tax rate.
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