Refer to Figure 13.1 for the following questions.
Figure 13.1

-If the economy moves from A to B in Figure 13.1, which of the following would be the appropriate fiscal policy to achieve potential GDP?
A)increase taxes
B)increase government spending
C)contractionary fiscal policy
D)decrease interest rates

Question

Refer to Figure 13.1 for the following questions.
Figure 13.1
 
-If the economy moves from A to B in Figure 13.1, which of the following would be the appropriate fiscal policy to achieve potential GDP?
A)increase taxes 
B)increase government spending 
C)contractionary fiscal policy 
D)decrease interest rates

Quizplus · Accepted Answer

If the economy moves from A to B, it indicates that the output level is below the potential GDP. To achieve potential GDP, expansionary fiscal policy is needed, which implies an increase in government spending or a decrease in taxes. Option B, increase government spending, is the appropriate fiscal policy choice to achieve potential GDP in this scenario. Therefore, the correct answer is B.

Refer to Figure 13.1 for the Following Questions