Which of the following could lead to a recessionary gap?
A) a fall in the price level
B) a tax increase
C) a fall in money wages
D) an increase in expected income
E) an increase in foreign incomes

Question

Quizplus · Accepted Answer

A tax increase would lead to a decrease in disposable income and aggregate demand, potentially leading to a recessionary gap. A fall in the price level (A) could potentially lead to an increase in aggregate demand and less likely to result in a recessionary gap. A fall in money wages (C) could potentially lower costs for businesses and increase aggregate supply, also less likely to result in a recessionary gap. An increase in expected income (D) and an increase in foreign incomes (E) could potentially increase aggregate demand and lead to an inflationary gap.

Which of the Following Could Lead to a Recessionary Gap