Suppose the economy is currently operating at potential output; an expansionary gap may be caused by each of the following except:
A)a positive demand shock.
B)a negative inflation shock.
C)a decrease in taxes.
D)an increase in the money supply.

Question

Quizplus · Accepted Answer

A negative inflation shock would typically reduce aggregate demand or increase costs, leading to a contractionary effect rather than an expansionary gap.

Suppose the Economy Is Currently Operating at Potential Output; an Expansionary