What is the difference between a recessionary gap and an inflationary gap?
What will be an ideal response?
A recessionary gap exists when the economy is in a below-full-employment equilibrium when potential GDP exceeds real GDP. The recessionary gap is the amount by which potential GDP exceeds real GDP. An inflationary gap occurs when the economy is in an above-full-employment equilibrium when real GDP exceeds potential GDP. In this case, the inflationary gap is the difference between real GDP and potential GDP.
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For a given level of inflation, if a resolution of international disputes leads to a cutback in government military spending, then the ________ shifts ________.
A. short-run aggregate supply line; downward B. aggregate demand curve; left C. short-run aggregate supply line; upward D. aggregate demand curve; right
If the economy was producing at point D and moved to point C
A. the unemployment rate would decrease.
B. the production possibilities frontier would shift outward.
C. the production possibilities frontier would shift inward.
D. None of these choices are true.