If an economy initially has no output gap and then reduces tariffs against the imports of its trading partners,the lower tariffs will cause net exports to ________,planned aggregate expenditure to ________,and a(n)________ gap to develop.

Question

Quizplus · Accepted Answer

Lower tariffs make imports cheaper, leading to an increase in imports and a decrease in net exports. This reduces planned aggregate expenditure, causing a recessionary gap to develop.

If an Economy Initially Has No Output Gap and Then