If the SRAS curve intersects the AD curve to the right of full employment real G

Question

If the SRAS curve intersects the AD curve to the right of full employment real GDP (potential output), the economy is

a. in a recessionary gap.
b. an employment gap..
c. in an inflationary gap.
d. at full-employment Real GDP.

According to the classical economists, which of the following statements is true?
a. There is a direct relationship between the amount individuals plan to save and the interest rate - higher rates cause people to save more and lower rates reduce savings.
b. Interest rates determine how much business firms invest - higher interest rates reduce investment and lower rates increase investment.
c. Financial markets ensure that S will equal I..
d. Interest rate flexibility will ensure that planned saving is equal to planned investment.
e. All of the above are true.

Explanation / Answer

b. an employment gap..
d. Interest rate flexibility will ensure that planned saving is equal to planned investment.

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