Consider the basic AD/AS model,and suppose there is a negative output gap.If an expansionary fiscal policy is pursued and the AS curve shifts right unexpectedly,the fiscal policy may be ________,and real GDP may ________ potential GDP.
A)too weak; stay below
B)too weak; rise above
C)too strong; stay below
D)too strong; rise above
E)appropriate; equal

Question

Quizplus · Accepted Answer

If the AS curve unexpectedly shifts to the right, it means there is an increase in the aggregate supply. This will result in a smaller negative output gap and the expansionary fiscal policy may become too strong. Real GDP will likely rise above potential GDP. Therefore, option D is the correct answer.

Consider the Basic AD/AS Model,and Suppose There Is a Negative