Figure 15-2
-Refer to the Figure 15-2.If the closed economy is at point b,the best policy to restore full employment is which of the following?
A) increasing the money supply
B) decreasing government purchases
C) increasing taxes
D) selling Canadian dollars

Question

Figure 15-2 
-Refer to the Figure 15-2.If the closed economy is at point b,the best policy to restore full employment is which of the following?
A) increasing the money supply 
B) decreasing government purchases 
C) increasing taxes 
D) selling Canadian dollars

Quizplus · Accepted Answer

At point b, the economy is in a recessionary gap, which means it is producing below its potential output level. In order to restore full employment, aggregate demand needs to be increased. One way to do this is by increasing the money supply, which will lower interest rates and promote borrowing and spending. Decreasing government purchases or increasing taxes would both reduce aggregate demand and exacerbate the recessionary gap. Selling Canadian dollars would not have any immediate impact on the domestic economy.

Figure 15-2 -Refer to the Figure 15-2.If the Closed Economy Is at Economy