If the economy is at an equilibrium with real GDP less than potential GDP, a fiscal stimulus could move the economy toward potential GDP by simultaneously ________ taxes and ________ government expenditures on goods and services.

Question

Quizplus · Accepted Answer

Fiscal stimulus involves government actions to increase economic activity, typically through cutting taxes (which increases consumers' disposable income and encourages spending) and increasing government expenditures on goods and services (which directly injects money into the economy), both of which can help move the economy toward its potential GDP.

If the Economy Is at an Equilibrium with Real GDP