For the following questions, use the diagram below:
Figure 34-3

-Refer to Figure 34-3.If the economy is at point b,a policy to restore full employment would be
A)an increase in the money supply.
B)a decrease in government purchases.
C)an increase in taxes.
D)All of the above are correct.

Question

For the following questions, use the diagram below:
Figure 34-3
 
-Refer to Figure 34-3.If the economy is at point b,a policy to restore full employment would be
A)an increase in the money supply. 
B)a decrease in government purchases. 
C)an increase in taxes. 
D)All of the above are correct.

Quizplus · Accepted Answer

At point b, the economy is experiencing a recessionary gap, meaning there is a deficiency in aggregate demand. To restore full employment, the government should implement expansionary policies, such as increasing the money supply through monetary policy, which would lower interest rates and stimulate investment and consumption. This would shift the aggregate demand curve to the right, leading to an increase in output and employment. Therefore, choice A is the correct option. Choices B and C would have a contractionary effect on the economy, exacerbating the recessionary gap.

For the Following Questions, Use the Diagram Below