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Starting from a Long-Run Equilibrium, a Reduction in Potential Output

Question 135

Multiple Choice

Starting from a long-run equilibrium, a reduction in potential output leads to ________ gap in the short run and to a ________ rate of inflation in the long run.


A) an expansionary; higher
B) an expansionary; lower
C) a recessionary; lower
D) a recessionary; higher

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