If an economy is in a recession, with output below its full-employment level, a(n)_____ return the economy to its long-run equilibrium, which would cause the price level to_____
A)expansionary; increase
B)expansionary; decline
C)contractionary; decline
D)contractionary; increase

Question

If an economy is in a recession, with output below its full-employment level, a(n)_____ return the economy to its long-run equilibrium, which would cause the price level to_____
A)expansionary; increase 
B)expansionary; decline
C)contractionary; decline
D)contractionary; increase

Quizplus · Accepted Answer

If the economy is in a recession, expansionary policies such as increasing government spending or reducing taxes can be implemented to increase output and return the economy to its long-run equilibrium. This would cause an increase in aggregate demand, potentially leading to an increase in the price level.

If an Economy Is in a Recession, with Output Below