Suppose real GDP exceeds potential real GDP. If the government decreases its expenditures on goods and services, then real GDP and the price level _ .
A) decreases; falls
B) increases; rises
C) increases; falls
D) decreases; rises

Question

Quizplus · Accepted Answer

When the government decreases its expenditures, it reduces aggregate demand, leading to a decrease in real GDP and a fall in the price level.

Suppose Real GDP Exceeds Potential Real GDP