[Answer] Assume an economy in long-run equilibrium. If in an effort to reduce the debt the government decides to decrease spending on social programs which of the following will be true?Inflationary gap develops.Recessionary gap develops.Expansionary policy should be used to return the economy to equilibrium.Contractionary policy should be used to return the economy to equilibrium.Economy remains in long-run equilibrium.V only.I and III only.II and III only.I and IV only.II and IV only.

Answer: II and III only.
Assume an economy in long-run equilibrium. If in an effort to reduce the debt the government decides to decrease spending on social programs which of the following will be true?Inflationary gap develops.Recessionary gap develops.Expansionary …

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