#1.A recessionary gap develops 1.only when the economy is in recession 2.when re

Question

#1.A recessionary gap develops

1.only when the economy is in recession

2.when resource prices are “sticky” upward

3.only when GDP grows by more than 4 percent

4.only when unemployment exceeds its natural rate

#2 Given the aggregate demand curve, a beneficial supply shock will

(decrease / increase) potential output and (increase /decrease / X ) the price level

#3 Which of the following are components of fiscal policy

1. government purchases and Money supply

2.Transfer payments only

3. Government purchases only

4.  transfer payments, Government purchases, and taxes

#4. what is most likely to close a recessionary gap in the economy

1. An increase in the compensation for government employees

2.An increase in the income tax rate

3.A decrease in money supply

4.A decrease in the expenditure on infrastructure

Explanation / Answer

#1.A recessionary gap develops

1.only when the economy is in recession

A recessionary gap happens when an economy is falling into a recession, which is defined as a lower real level of income (as measured by real GDP) then the full-employment level.

#2 Given the aggregate demand curve, a beneficial supply shock will

( increase) potential output and (decrease) the price level

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