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Starting from Potential Output, If Firms Become Less Optimistic About

Question 30

Multiple Choice

Starting from potential output, if firms become less optimistic about the future and decide to decrease their investment in new capital, then this will generate a(n) ________ gap and inflation will ________.


A) recessionary; increase
B) recessionary; decrease
C) expansionary; decrease
D) expansionary; increase

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