Question

For policymakers, the problem with a recessionary gap is ________ and the problem with an expansionary gap is ________.A. a tendency for inflation to increase; wasted resourcesB. wasted resources; a tendency for inflation to increaseC. an increase in cyclical unemployment; an increase in structural unemploymentD. an increase in structural unemployment; an increase in cyclical unemployment

Answer 1

Answer:

The correct answer is option B.

Explanation:

A recessionary gap implies that the available resources in the economy are not being fully utilized. this means that resources are being wasted and economy is not producing at the efficient level of output.  

An expansionary gap, on the other hand, involves the risk of an increase in the inflation rate. Both situations are not good for an economy.  

A recessionary gap is corrected by adopting an expansionary monetary or fiscal policy. Similarly, an expansionary gap can be corrected by adopting a contractionary fiscal or monetary policy.