ms/mod/ibis/vi O d City University of New York of 21 pling Learning Suppose that

Question

ms/mod/ibis/vi O d City University of New York of 21 pling Learning Suppose that Papau New Guinea's potential GDP is equal to $950 trillion and that its real GDP is equal to $900 Map de trillion. According to the neoclassical view, what can you infer about Papau New Guinea's economy? O Papau New Guinea's economy is in recession. O Papau New Guinea's economy is in full-employment equilibrium O Papau New Guinea's economy is in expansion. O Papau New Guinea's economy is in long-run equilibrium. Hint

Explanation / Answer

Ans is A

Since Real GDP<Potential GDP which makes there is recessionary gap and an economy is in recession.

Recessionary gap=950-900=50 trillion.

Thus govt. Should use an expansionary fiscal and monetary policy.

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