In November, 2012, U.S. lawmakers were faced with a "fiscal cliff:" if they did not agree on how to reduce the federal deficit, automatic tax increases and drastic cuts in government spending would take effect. What would be the result if the fiscal cliff occurred?
A) a recessionary gap
B) an inflationary gap
C) stagflation
D) nothing

Question

Quizplus · Accepted Answer

The fiscal cliff scenario involved automatic tax increases and significant cuts in government spending, which would likely lead to reduced consumer spending and lower economic output, potentially causing a recessionary gap. This is characterized by actual output being less than potential output in an economy.