If the government wants to engage in fiscal policy to increase real GDP, it could

Question

Quizplus · Accepted Answer

The correct choice to increase real GDP through fiscal policy would be to increase government expenditure in order to increase aggregate demand. This will lead to an increase in consumption and investment which will in turn increase output and real GDP. Decreasing government expenditure would have the opposite effect and decrease aggregate demand leading to a decrease in real GDP. Changing short-run aggregate supply would not directly impact real GDP.

If the Government Wants to Engage in Fiscal Policy to Increase