If the government wants to engage in fiscal policy to increase real GDP, it could
A) decrease government expenditure in order to increase short-run aggregate supply.
B) decrease government expenditure in order to decrease aggregate demand.
C) increase government expenditure in order to increase short-run aggregate supply.
D) increase government expenditure in order to increase aggregate demand.

Question

Quizplus · Accepted Answer

To increase real GDP, the government should use expansionary fiscal policy by increasing government expenditure. This will increase aggregate demand, which will in turn increase output and employment in the economy. Option A would decrease aggregate demand and Option B would decrease short-run aggregate supply, which would not increase real GDP. Option C would only increase short-run aggregate supply, but it would not necessarily increase real GDP.

If the Government Wants to Engage in Fiscal Policy to Increase