Use the following to answer questions:
-If the economy is at equilibrium below potential output,there is a(n)_____ gap,and a(n)_____ fiscal policy is appropriate.
A) recessionary;expansionary
B) inflationary;expansionary
C) recessionary;contractionary
D) inflationary;contractionary

Question

Use the following to answer questions: 
-If the economy is at equilibrium below potential output,there is a(n)_____ gap,and a(n)_____ fiscal policy is appropriate.
A) recessionary;expansionary 
B) inflationary;expansionary 
C) recessionary;contractionary 
D) inflationary;contractionary

Quizplus · Accepted Answer

If the economy is at equilibrium below potential output, it means there is a recessionary gap, which indicates unemployment and a lack of demand in the economy. Therefore, expansionary fiscal policy, which involves government spending increase and tax cuts, is appropriate to stimulate economic growth, create jobs and increase demand in the economy.

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