If real GDP is less than potential GDP, which of the following fiscal policies would increase real GDP?
A)a decrease in taxes
B)an increase in government expenditures
C)a fall in the interest rate
D)Both A and B are correct
E)A, B, and C are correct

Question

Quizplus · Accepted Answer

A decrease in taxes will increase disposable income, which will increase consumer spending, leading to an increase in aggregate demand and real GDP. An increase in government expenditures will directly increase aggregate demand and thus increase real GDP.

If Real GDP Is Less Than Potential GDP, Which of the Following