Author Question: Business cycles are recurring periods of economic growth and decline in an economy's real GDP. a. ... (Read 111 times)

Yolanda · **on:** Jun 30, 2018

Business cycles are recurring periods of economic growth and decline in an economy's real GDP.
a. True
b. False
Indicate whether the statement is true or false

Question 2

The government wishes to close an inflationary gap by reducing real GDP by 400 billion. Assuming a tax multiplier of 4 and an income multiplier of 5, which of the following policy prescriptions would reduce the inflationary gap by 400 billion?
a. Decreasing government spending by 400 billion and increasing taxes by 400 billion.
b. Decreasing government spending by 160 billion and decreasing taxes by 100 billion.
c. Decreasing government spending by 40 billion and decreasing taxes by 40 billion.
d. Decreasing government spending by 80 billion and keeping taxes the same.
e. Doing absolutely nothing to the economy.