3) A decrease in taxes should be applied in a situation with a recessionary gap.
ID: 1107732 • Letter: 3
Question
3) A decrease in taxes should be applied in a situation with
a recessionary gap.
an inflationary gap.
low unemployment.
high demand for goods and services.
4) If the economy has been producing at a point where real GDP is less than potential GDP, what fiscal policy can the federal government use to restore real GDP to potential GDP?
cut government expenditure on goods and services.
increase taxes.
cut taxes.
raise the interest rate.
a recessionary gap.
an inflationary gap.
low unemployment.
high demand for goods and services.
Explanation / Answer
Answer.)
Q3.) a recessionary gap.
A recessionary gap occurs when the actual GDP (gross domestic product) is lesser than the GDP at full employment. This requires government to increase disposable income of public so that there could be a increase in Aggregate expenditure .
Q4.) cut taxes.
Cutting taxes would help government to increase disposable income of public so that there could be a increase in Aggregate expenditure to fill the gap between real GDP and potential GDP.
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