Explain how fiscal policy can correct a contractionary gap
What will be an ideal response?
A contractionary gap can be closed by an increase in aggregate demand. By increasing government spending or reducing taxes, aggregate demand increases, thereby raising the level of real GDP.
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The interest rate for primary credit is usually set ________ basis points ________ the federal funds rate. In March 2008, this gap was changed to ________ basis points
A) 50; below; 100 B) 100; above; 25 C) 100; below; 50 D) 50; above; 25
The real interest rate rises:
a. When society, as a whole, is less willing to give up consumption today for consumption in the future. b. When society, as a whole, is more willing to give up consumption today for consumption in the future. c. When expected inflation rises. It has nothing to do with whether or not a society is more or less willing to give up consumption today for tomorrow. d. When expected inflation falls. It has nothing to do with whether a society is more or less willing to give up consumption today for tomorrow.