Author Question: To eliminate a recessionary gap, what fiscal policy should the government pursue? What will be an ... (Read 56 times)

Mr3Hunna · **on:** Jun 29, 2018

To eliminate a recessionary gap, what fiscal policy should the government pursue?

What will be an ideal response?

Question 2

The economy is at full employment. If aggregate demand increases,

A) an inflationary gap is created and the AS curve shifts leftward as the money wage rate rises.
B) an inflationary gap is created and the AD curve shifts leftward.
C) an inflationary gap is created and potential GDP increases to close the ga

whitcassie · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

A recessionary gap occurs when real GDP is less than potential GDP. To restore full employment, the government should increase its expenditures on goods or services or decrease its taxes.

Answer to Question 2

A