Suppose the economy is initially operating at full employment. A reduction in the size of the budget deficit will cause which of the following in the long run?
A) a recessionary gap
B) a reduction in real GDP
C) an inflationary gap
D) none of the above
Question 2
Which of the following is a statement with positive economic analysis?
A) Lower wages increase employment and reduce the unemployment rate.
B) Slower money growth reduces inflation.
C) A reduction in the size of the budget deficit will reduce interest rates.
D) all of the above
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Draw a full and complete mechanism for the following reaction shown below.