Chapter 18, Problem 7P

To determine

To explain:

Different situations when different policy recommendations have been used.

Concept Introduction:

Gross Domestic Product (GDP):

It refers to the gross money value or gross market value of all the finished goods and the services produced by the normal resident and nonresident people of the country that is within that particular within the borders of the country in an accounting year.

Inflationary Gap:

At the level of full employment, if the value of the real GDP is greater than the value of potential GDP, it leads to emergence of inflationary gap.

Recessionary Gap:

At the level of full employment, if the value of the potential GDP is greater than the value of real GDP, it leads to emergence of recessionary gap.

Use of economic theory.