If short-run equilibrium output equals 20,000 and potential output (y*) equals 25,000, then this economy has a(n) gap that can be closed by
a. recessionary; increasing taxes
b. expansionary; increasing transfer payments
c. expansionary; increasing government purchases
d. recessionary; increasing government purchases

D. recessionary; increasing government purchases.

Explanation:

The short-run equilibrium is lower than the potential or long run output. This means that the economy is far from its economic potential and a lot of resources remain unused, causing unemployement and unproductiveness.

According to the Kenesyan model, this is a problem of aggregate demand that can be solve by the government increasing the expenditures, allocating the unused resources.

1   b) the use of non-standard grammar  

2   a) quiet and shy.