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)AT of the abo 24. S uppose an economy has an upward-sloping AS curve and an inf

ID: 1153416 • Letter: #

Question

)AT of the abo 24. S uppose an economy has an upward-sloping AS curve and an inflationary gap equal to $10 billion. If AD shifts to the left by 10 billion, A. Real output will fall by less than $10 billion. B. Real output will fall by $10 billion. C. The inflationary gap will be eliminated. D. A recessionary gap will be created. 25. The recessionary GDP gap represents the A. Amount by which aggregate demand must increase to reach full employment. B. Value of the goods and services that could be produced but were not due to unemployed resources C. Leakages minus injections. D. Amount by which actual investment differs from desired investment. Assume the equilibrium level of output is less than full employment. To achieve full- employment equilibrium, the aggregate demand curve must shift to the right by A. The amount of the recessionary GDP gap. B. An amount less than the recessionary GDP gap because the spending increase causes 26. the multiplier process to occur C An amount greater than the recessionary GDP gap because the spending increase raises the price level. D. An amount less than the recessionary GDP gap because the spending increase raises output and prices Which of the following can eliminate a recessionary GDP gap, ceteris paribus? A. An increase in consumption expenditure B. A decrease in investment C. An increase in saving D. A decrease in government spending. 27. In the short run, if AD increases, the unemployment rate will A. Rise, and the price level will rise. B. Fall, and the price level will rise. C. Rise, and the price level will fall. D. Fall, and the price level will fall. 28.

Explanation / Answer

24. Option b

the real output will decrease by less than $10 billion. The inflationary gap will not be covered.

25. Option b

In the case of a recessionary gap, real GDP is less than the potential GDP and resources are not fully employed.

26. Option c

the price level will increase due to increased spending and therefore a greater amount is required.

27. Option a

An increase in consumer spending will increase aggregate demand due to which AD curve shifts to the right and recessionary gap can be closed.

28. option b

when there is more employment, there will be more consumer spending and price level will increase.

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