Figure 27-1

-Refer to Figure 27-1.In the graph above,if the economy is at point A,an appropriate fiscal policy by the Congress and the president would be to

Question

Figure 27-1
 
-Refer to Figure 27-1.In the graph above,if the economy is at point A,an appropriate fiscal policy by the Congress and the president would be to

Quizplus · Accepted Answer

Point A represents a situation of low output and high unemployment, indicating a recessionary gap. To close this gap, expansionary fiscal policy is necessary. Increasing government transfer payments, such as unemployment benefits, will increase disposable income, stimulate consumption and ultimately increase aggregate demand, leading to an increase in output and employment. Lowering the discount rate or executing an open market sales of government securities are monetary policy tools, not fiscal policy tools, and are not appropriate in this situation. Increasing marginal income tax rates would reduce disposable income, decrease consumption, and further decrease aggregate demand, exacerbating the recessionary gap.

Figure 27-1 -Refer to Figure 27-1.In the Graph Above,if the Economy Is