Exhibit 11.1

-Refer to Exhibit 11.1, which shows the relationship between the price level and the real GDP. If the government wants the economy to be at full employment, it should _____

Question

Exhibit 11.1
 
-Refer to Exhibit 11.1, which shows the relationship between the price level and the real GDP. If the government wants the economy to be at full employment, it should _____

Quizplus · Accepted Answer

According to the graph, at the equilibrium point of full employment, the price level is P1 and the real GDP is Yf. To reach this point, the government should increase its purchases, which will shift the aggregate demand (AD) curve to the right, leading to an increase in both the price level and real GDP until the full employment level is reached. Decreasing transfer payments or government purchases, or waiting for the SRAS curve to shift, would likely have negative effects on the economy, particularly in terms of reducing aggregate demand and potentially leading to a recession. Increasing taxes could also decrease aggregate demand and lead to an economic slowdown.

Exhibit 11.1 -Refer to Exhibit 11.1, Which Shows the Relationship Between the the Relationship