An economy is at full employment. Which of the following events can create a recessionary gap?
A) an increase in taxes
B) a decrease in the quantity of capital
C) a decrease in money wages
D) an increase in foreign income

Question

Quizplus · Accepted Answer

An increase in taxes means people will have less disposable income to spend, leading to a decrease in aggregate demand and causing a recessionary gap.

An Economy Is at Full Employment