Which of the following changes could create a more negative output gap in an economy?
(i) The United States places additional tariffs on imports.
(ii) Foreign countries place tariffs on U.S. exports.
(iii) There is a reduction in availability of money or credit from banks and lenders.
(iv) Consumer pessimism increases.
A)(i), (ii), (iii), and (iv)
B)(ii), (iii), and (iv)
C)(i) and (ii)
D)(iii) and (iv)

Question

Quizplus · Accepted Answer

All of the given changes can create a more negative output gap in an economy. An additional tariff on imports (i) would reduce demand for foreign goods, potentially leading to a decrease in economic activity. If foreign countries retaliate by placing tariffs on U.S. exports (ii), this could also reduce demand for U.S. goods and further decrease economic activity. A reduction in availability of money or credit from banks and lenders (iii) can reduce investment and consumer spending, leading to a decrease in economic activity. If consumer pessimism increases (iv), it can lead to a decrease in consumer spending, also causing a decrease in economic activity.

Which of the Following Changes Could Create a More Negative