The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP.
-In the figure above, the ________ gap is one trillion dollars. To close the gap, the government can ________ government expenditure and/or ________ taxes.

Question

The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP. 
-In the figure above, the ________ gap is one trillion dollars. To close the gap, the government can ________ government expenditure and/or ________ taxes.

Quizplus · Accepted Answer

The gap described is a recessionary gap, which occurs when an economy's actual output is less than its potential output. To close this gap, the government can increase government expenditure to stimulate demand and/or decrease taxes to increase disposable income and consumption, thereby stimulating economic activity.

The Figure Above Shows a Nation's Aggregate Demand Curve, Aggregate