Question 1A recessionary gap can theoretically close on its

Question:

1)A recessionary gap can theoretically close on its own because.

a)Aggregate supply will gradually shift to the right as input prices decrease in the time of recession.

b)Aggregate demand will gradually shift to the right as input prices decrease in the time of recession.

c)Aggregate demand will gradually shift to the left as input prices decrease in the time of recession.

d)None of the above.

2)In the time of inflation

a)The government deficit tends to increase as a result of expansionary fiscal policies.

b)The government deficit tends to decrease as a result of expansionary fiscal policies.

c)Increasing government expenditures is not appropriate.

d)It is appropriate to increase taxes.

e)d and c.

3)Which is more likely to happen as a result of a sudden increase in aggregate demand?

a)Recession only.

b)Inflation only.

c)Stagflation.

4)Which is more likely to happen as a result of a sudden increase in aggregate supply?

a)Recession only.

b)Inflation only.

c)Stagflation.

d)None.

Solution

Ans 1)

Option A is correct response

This gap is closed with lower wages and a shift in the supply curve to the right.

Ans 2)

Option E is correct response

when inflation occurs government cuts down the aggregate demand to reduce inflation which will increase the tax rate that will reduce disposable income

Ans 3)

Option C is correct response as AD increases the inflation

Ans 4)

Recession only Hence option A is correct response