Homework SourseWhich of the following is NOT correct about a Recessionary E
Which of the following is NOT correct about a Recessionary Expenditure Gap?
A Keynesian solution to a recessionary expenditure gap is to increase government spending and/or cut taxes.
A recessionary expenditure gap is the amount by which aggregate expenditures fall short of Potential GDP.
Because of the multiplier, the amount that government spending would have to be increased to erase a recessionary expenditure gap is less than the amount of the full gap.
The gap describes the amount by which an economy\'s aggregate expenditures exceed those necessary to achieve Potential GDP (full employment GDP).
| a. | A Keynesian solution to a recessionary expenditure gap is to increase government spending and/or cut taxes. | |
| b. | A recessionary expenditure gap is the amount by which aggregate expenditures fall short of Potential GDP. | |
| c. | Because of the multiplier, the amount that government spending would have to be increased to erase a recessionary expenditure gap is less than the amount of the full gap. | |
| d. | The gap describes the amount by which an economy\'s aggregate expenditures exceed those necessary to achieve Potential GDP (full employment GDP). |
Solution
a) \"D\"
The gap describes the amount by which an economy\'s aggregate expenditure exceeds those necessary to achieve potential GDP (full employment GDP.)
The above-given statement is an example of an inflationary gap, not recessionary.
