Multiple Choice
Refer to the figure below.Suppose the economy is in a short-run equilibrium at output Y3 and inflation rate 2.The economy is currently experiencing ______, and the correct fiscal policy response to this situation, to return the economy to potential GDP, is to ______. 
A) a recessionary gap; increase government spending
B) an expansionary gap; decrease government spending
C) a recessionary gap; increase taxes
D) an expansionary gap; decrease taxes
Correct Answer:
Verified
Correct Answer:
Verified
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