Question

if fiscal policy is used to correct a recessionary gap, which of the following would most likely occur in the absence of crowding out in the short run? if fiscal policy is used to correct a recessionary gap, which of the following would most likely occur in the absence of crowding out in the short run? real output increase, unemployment decrease real output decrease, unemployment increase real output increase, unemployment increase real output decrease, unemployment decrease real output decrease, no change in unemployment

Answer 1

For correcting a recession gap in the economy, D- real GDP will decrease and unemployment will increase if fiscal policy is used.

Fiscal policies are often updated to keep up with economic conditions of the nation stable.

Real GDP will directly reflect an image of what are the conditions of a nation in current period. Unemployment is directly related to a recession in the country.

Unemployment can be defined as the total number of population in the country which isn't earning and rather cant get the basic expenses covered by themselves.

As there will be recession in the country the prices of the commodity would go up and there will be unemployment as employers wont be able to afford additional labor.

Hence option D is correct that the real GDP will decrease and the unemployment will increase.

To know more about recession, refer to the links given below.

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