Figure 13.2

-Refer to Figure 13.2.Assume the economy is initially in equilibrium with real GDP equal to potential GDP.Other things equal,the economy entering a recession would best be represented as a movement from ________ if there are no automatic stabilizers,and from ________ if there are automatic stabilizers.

Question

Figure 13.2

-Refer to Figure 13.2.Assume the economy is initially in equilibrium with real GDP equal to potential GDP.Other things equal,the economy entering a recession would best be represented as a movement from ________ if there are no automatic stabilizers,and from ________ if there are automatic stabilizers.

Quizplus · Accepted Answer

A recession is characterized by a decrease in GDP below potential GDP. Without automatic stabilizers, the decrease in aggregate demand would lead to a movement from point A to point C in Figure 13.2. With automatic stabilizers, the decrease in output would be partially offset by increases in government spending and transfers, leading to a smaller decrease in aggregate demand and a movement from point A to point B. Therefore, the best representation would be a movement from point A to point C without automatic stabilizers and from point A to point B with automatic stabilizers. Option B is the only one that correctly identifies these movements.

Figure 13.2 -Refer to Figure 13.2.Assume the Economy Is Initially in Equilibrium