If full-employment output exceeds equilibrium output,greater deficit spending will result in a
A)Smaller recessionary gap.
B)Smaller inflationary gap.
C)Larger recessionary gap.
D)None of the choices are correct.

Question

Quizplus · Accepted Answer

When full-employment output exceeds equilibrium output, it indicates a recessionary gap. Greater deficit spending, typically through increased government spending or tax cuts, stimulates the economy, increasing demand and pushing equilibrium output closer to full-employment output, thus reducing the recessionary gap.

If Full-Employment Output Exceeds Equilibrium Output,greater Deficit Spending Will Result