The table below shows the aggregate equilibrium for the country of Nickeltown. Aggregate Data Year Nickeltown Potential Aggregate Output Current Aggregate Output Price Level 2002 in billions 400 in billions 300 90 2003 300 200 95 In 2002, Nickeltown experienced a Recessionary gap Inflationary gap Potential equilibrium What would be an appropriate action for the government of Nickeltown to take? Raise taxes Increase government spending Nothing
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- To determine the type of gap in 2002, we need to compare the potential aggregate output (400 billion) with the current aggregate output (300 billion). - Since the potential aggregate output is higher than the current aggregate output, there is a recessionary Show more…
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