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Starting from Potential Output, If Firms Become Less Optimistic and Decide

Question 18

Multiple Choice

Starting from potential output, if firms become less optimistic and decide to decrease their investment in new capital, then this will shift the ______ curve to the left and generate ______.


A) aggregate demand; a recessionary output gap
B) aggregate supply; a recessionary output gap
C) aggregate demand; an expansionary output gap
D) aggregate supply; an expansionary output gap

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