The combination of expansionary monetary policy and a self-regulating economy will cause real GDP will rise to the level above natural real GDP and the recessionary gap would hence turn into an inflationary gap situation.
<h3>What do you mean by monetary policy?</h3>
Monetary Policy refers to the control of the quantity of money available in an economy through which new money is supplied.
The self-regulating economy experiences a recessionary gap. The real GDP is less than the level of natural real GDP. The gap is been corrected by the rightward shift in the short-run aggregate supply curve.
Due to interplay, real GDP will rise to the level above natural real GDP and the recessionary gap turn into an inflationary gap.
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The answer to the question of whether the export subsidy would make domestic producers sell steel to domestic consumers and sell the rest abroad is:
- False because the domestic producers would not want to sell at a lesser price than what they would have sold abroad.
<h3>What is Export Subsidy?</h3>
This refers to the government policy which is meant to discourage export of goods with the aim of regulating the economy which usually leads to the increase in the amount of customer surplus in the market.
With this in mind, we can see that the export subsidy has to do with the increase in domestic price whereby there is a higher cost for exports for producers.
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