Table 27-1

-Refer to Table 27-1. Consider the hypothetical information in the table above for potential real GDP, real GDP, and the price level in 2018 and in 2019 if Congress and the president do not use fiscal policy. If Congress and the president want to keep real GDP at its potential level in 2019, they should
A) decrease income taxes.
B) decrease government purchases.
C) decrease the money supply.
D) increase the level of interest rates.

Question

Table 27-1
 
-Refer to Table 27-1. Consider the hypothetical information in the table above for potential real GDP, real GDP, and the price level in 2018 and in 2019 if Congress and the president do not use fiscal policy. If Congress and the president want to keep real GDP at its potential level in 2019, they should
A) decrease income taxes. 
B) decrease government purchases. 
C) decrease the money supply. 
D) increase the level of interest rates.

Quizplus · Accepted Answer

If Congress and the president want to keep real GDP at its potential level in 2019, they should decrease income taxes. This will increase disposable income and aggregate demand, which will lead to an increase in real GDP.

Table 27-1 -Refer to Table 27-1. Consider the Hypothetical Information in the Hypothetical