Suppose the economy is at an equilibrium in which real GDP is less than potential GDP.To increase real GDP,the government can use a fiscal stimulus of

Question

Quizplus · Accepted Answer

To increase real GDP, the government can implement a fiscal stimulus, which involves increasing government expenditure and/or decreasing taxes. This can lead to an increase in aggregate demand, as consumers and businesses have more money to spend and invest. Decreasing government expenditure or increasing taxes would have the opposite effect, reducing aggregate demand and potentially deepening the recession. Increasing the quantity of money (i.e. monetary stimulus) could also increase aggregate demand, but that is not the question being asked here. Therefore, E is the best choice.

Suppose the Economy Is at an Equilibrium in Which Real