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Suppose the Economy Is Producing Below the Natural Rate of Output

Question 71

Multiple Choice

Suppose the economy is producing below the natural rate of output and the government is suffering from large budget deficits.To deal with the deficit problem,suppose the government takes a policy action to reduce the size of the deficits.This policy action will cause ________ in the unemployment rate in the short run and ________ in the aggregate price level in the short run,everything else held constant.


A) an increase; an increase
B) a decrease; a decrease
C) a decrease; an increase
D) an increase; a decrease

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