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Suppose that actual GDP is currently less than potential GDP. Answer the three questions below. (a) Is this an inflationary gap or a recessionary gap?

Suppose that actual GDP is currently less than potential GDP. Answer the three questions below.

(a) Is this an inflationary gap or a recessionary gap?

(b) What would Keynesian economic theory say is a proper government policy response in this situation?

(c) Would the Fed likely enact expansionary or contractionary monetary policy?

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