Which of the following changes could create a more positive output gap in an economy?
(i) The GDP of an important trading partner falls.
(ii) Defense spending increases.
(iii) Consumer wealth increases.
(iv) The risk premium decreases.
A)(i) only
B)(i), (ii), and (iii)
C)(iii) and (iv)
D)(ii), (iii), and (iv)

Question

Quizplus · Accepted Answer

A positive output gap occurs when actual output is higher than potential output. (ii) Defense spending increases, (iii) Consumer wealth increases, and (iv) The risk premium decreases can all stimulate economic activity, leading to a more positive output gap. (i) The GDP of an important trading partner falling would likely have a negative impact on the economy, not contributing to a positive output gap.

Which of the Following Changes Could Create a More Positive