Consider the equation GDP = F × (FE/F) × (GDP/FE) . If the economy enters a recessionary gap because of a negative aggregate demand shock, the equation changes in which of the following ways?
A) the value of FE/F falls as workers are laid off and equipment is used less intensively.
B) the value of FE/F rises as the rate of unemployment rises.
C) the value of GDP/FE falls as workers are laid off and equipment is used less intensively.
D) there are no short- run changes in this case.
E) the value of F falls as the rate of unemployment rises.
Correct Answer:
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