If the economy is in equilibrium with real GDP less than potential GDP,there is ________ gap and a fiscal policy that ________ is appropriate.
A)an inflationary;increases aggregate demand
B)an inflationary;decreases aggregate demand
C)a recessionary;increases aggregate demand
D)a recessionary;decreases aggregate demand
E)a recessionary;increases potential GDP

Question

Quizplus · Accepted Answer

When real GDP is less than potential GDP, there is a recessionary gap. To close this gap, a fiscal policy that increases aggregate demand is appropriate, as it can help boost economic activity and move the economy towards its potential output.

If the Economy Is in Equilibrium with Real GDP Less