In the short run, if the economy has a recessionary gap, an increased government
ID: 1092787 • Letter: I
Question
In the short run, if the economy has a recessionary gap, an increased government budget deficit resulting from higher government spending or lower taxes is most likely to
a. have no effect on aggregate demand or real GDP after direct and indirect offsets are counted.
b. decrease aggregate demand, reduction proces and increasing the recessionary gap.
c. increase aggregate demand, raising proces and creating and inflationary gap.
d. increase aggregate demand, which will move the economy toward full employment real GDP.
Explanation / Answer
d. increase aggregate demand, which will move the economy toward full employment real GDP.