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What is most likely to occur if the economy moves into an expansion while its economy is producing more than potential GDP?The difference between the level of real GDP and potential GDP is known as the output gap. When the output gap is positive—when GDP is higher than potential—the economy is operating above its sustainable capacity and is likely to generate inflation.
What happens if the government goes into a recession?If the economy enters a recession taxes will fall as income and employment fall. At the same time, government spending will increase as people are given unemployment compensation and other transfers such as welfare payments. Such automatic changes in revenue and expenditures work to increase the deficit.
When a country's economy is producing at a level that exceeds its potential GDP?If the real GDP exceeds potential GDP (i.e., if the output gap is positive), it means the economy is producing above its sustainable limits, and that aggregate demand is outstripping aggregate supply. In this case, inflation and price increases are likely to follow. 3.
How do automatic stabilizers work when Canada's economy is above its potential GDP quizlet?If Canada's economy moves into an expansion while its economy is producing more than potential GDP, then: automatic stabilizers will decrease government spending and increase tax revenue.
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