Exhibit 11.1

-Refer to Exhibit 11.1, which shows the relationship between the price level and the real GDP. Which of the following sets of policies would unambiguously move the economy to full employment?

Question

Exhibit 11.1
 
-Refer to Exhibit 11.1, which shows the relationship between the price level and the real GDP. Which of the following sets of policies would unambiguously move the economy to full employment?

Quizplus · Accepted Answer

In the exhibit, full employment is shown as the point where the real GDP intersects with the potential GDP. To move the economy to full employment, we need to increase the output level, which can be achieved by increasing government purchases. Decreasing taxes and increasing transfer payments will also increase aggregate demand, leading to an increase in output level. Therefore, option C, which includes an increase in government purchases, a decrease in taxes, and an increase in transfer payments, is the best choice.

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