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In the figure above, to use fiscal policy to move the economy back to potential GDP, the government must increase government expenditure by _{--------------------}$1 trillion and/or decrease taxes by _{--------------------}$1 trillion.

Question

- In the figure above, to use fiscal policy to move the economy back to potential GDP, the government must increase government expenditure by <sub>--------------------</sub>$1 trillion and/or decrease taxes by <sub>--------------------</sub>$1 trillion. A) recessionary; less than; more than B) recessionary; exactly; exactly C) recessionary; more than; more than D) inflationary; less than; less than E) recessionary; less than; less than

Quizplus · Accepted Answer

To address a recessionary gap and move the economy back to potential GDP, the government should increase spending or decrease taxes by less than $1 trillion due to the multiplier effect, which amplifies the impact of fiscal policy changes.

- In the Figure Above, to Use Fiscal Policy to Move