An economy's potential output is equal to $232 billion,and its current output is equal to $230 billion.To return the economy to long-run equilibrium,the government should

Question

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Potential output refers to the maximum level of output an economy can produce when all its resources—physical capital, human capital, and natural resources—are employed at their highest level of efficiency. Current output, on the other hand, refers to the level of output produced by an economy in a given period, which may be lower or higher than potential output.

In this case, the economy's current output is slightly below its potential output by $2 billion. To return the economy to long-run equilibrium, the government can use expansionary fiscal policy by increasing its spending. However, the increase in spending should not be more than $2 billion because more than that may cause inflationary pressures in the economy.

Therefore, the best choice(s) is to increase spending by less than $2 billion, which is option D. This will help boost the economy's production and bring it back to its potential output without causing inflationary pressures in the economy.

An Economy's Potential Output Is Equal to $232 Billion,and Its