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21. Suppose an economy has an upward-sloping aggregate supply curve and a recessionary
GDP gap equal to $50 billion. If aggregate demand increases by a total of $50 billion:
A) The GDP gap will be eliminated.
B) The resulting equilibrium GDP will be lower than full employment GDP because some
of the additional spending will drive up prices instead of increasing output.
C) The resulting equilibrium GDP will be greater than full employment GDP because of
demand-pull inflation.
D) Any of the above could occur depending on the size of the multiplier.

Top Answer

The correct answer is: d) any of the above may occur depending on the size of the multiplier A recession gap occurs... View the full answer

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