Figure 13.2 -Refer to Figure 13.2.Assume the Economy Is Initially in Equilibrium

Multiple Choice

Figure 13.2

-Refer to Figure 13.2.Assume the economy is initially in equilibrium with real GDP equal to potential GDP.Other things equal,if the economy enters a recession and the government underestimates the severity of the recession when implementing fiscal policy,the output gap will ________ and the rate of inflation will ________ than if the government had correctly estimated the recession's severity.

A) decrease less; decrease less
B) decrease more; decrease more
C) decrease more; decrease less
D) not change; not change