Read the two statements and choose the correct option.
I. A deflationary gap means that prices must be falling.
II. A deflationary gap means that output is above the full-employment level.

Only ICorrect answerYour answerOnly IICorrect answerYour answerBoth I and IICorrect answerYour answerNeither I nor IICorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer D

Correct answer: D

The main effect is lower output and employment; prices may stay sticky. I is false.
With too little demand, output settles below full employment, not above it. II is false.

Ten questions from Excess & Deficient Demand, at your own pace.

Ten questions from Excess & Deficient Demand, at your own pace.

Read the two statements and choose the correct option.I. A deflationary gap means that prices must be falling.II. A deflationary gap means that output is above the full-employment level.