Question Completion Status: QUESTION 1 In a self-regulating economy, inflationar

Question

Question Completion Status: QUESTION 1 In a self-regulating economy, inflationary and recessionary gaps produce shifts of the O A AD curve that maintain the short-run equilibrium point. OB. AD curve that move the economy to a long-run equilibrium point. O C.AD curve that move the economy to a long-run equilibrium point D. SRAS curve that move the economy to a long-run equilibrium point. QUESTION 2 Reductions in private spending as a result of increased govermment spending or the need A pushing irn. B rushing forth C crowding in D crowding out.

Explanation / Answer

Q 1 ) D. SRAS that move the economy to a long run equilibrium point

Either in case of inflationary or recessionary gaps, the Short run aggregate supply curve would shift to move the economy in long run equilibrium.

Q 2) D. crowding out

Crowding out occurs when govt borrows to pay budget deficit. It occurs when expansionary fiscal policy causes a rise in interest rate, which leads to a reduction in private spending, mainly investment.

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