The economy is currently in a recession due to a reduction in consumer confidence.Output and the real interest rate are below their levels prior to the recession.Six months later the economy has returned to its equilibrium level of output and the previous interest rate.Which of the following must have happened?
A)The government did not intervene in the economy.
B)The government increased the money supply.
C)The government decreased the money supply.
D)The government increased purchases of goods.

Question

Quizplus · Accepted Answer

Since the economy has returned to its equilibrium level of output and the previous interest rate, it means that there was an increase in aggregate demand, which could have been caused by an increase in government purchases of goods. This increase in government spending would have stimulated demand and output, allowing the economy to return to its equilibrium. Therefore, choice D is the best answer. The other options are not supported by the information given and are therefore incorrect.

The Economy Is Currently in a Recession Due to a Reduction