When the macroeconomic equilibrium is such that real GDP is less than potential real GDP, the economy is suffering from ________ and the government policy to eliminate this gap will ________ real GDP and to ________ the price level.
A) a recessionary gap; decrease; decrease
B) an inflationary gap; increase; decrease
C) a recessionary gap; increase; increase
D) an inflationary gap; decrease; increase
E) a recessionary gap; decrease; increase

Question

Quizplus · Accepted Answer

When real GDP is less than potential GDP, there is a recessionary gap. To eliminate this gap, the government can use expansionary policies to increase real GDP, which may also increase the price level.

When the Macroeconomic Equilibrium Is Such That Real GDP Is