In the Short Run, a Fiscal Policy Action That Results

Multiple Choice

In the short run, a fiscal policy action that results in a reduction in the size of the budget deficit will cause

A) an increase in real GDP with stable prices if the economy was below full employment.
B) a reduction in real GDP with falling prices if the economy was below or at full employment.
C) an inflationary gap if the economy was initially operating at full employment.
D) an inflationary gap if the economy was initially operating below full employment.