Suppose real GDP is $12.1 trillion and potential GDP is $12.6 trillion.To move the economy back to potential GDP,Congress should
A)lower taxes by an amount less than $500 billion.
B)raise government purchases by $500 billion.
C)raise government purchases by more than $500 billion.
D)lower taxes by $500 billion.
E)lower government purchases by $500 billion.

Question

Quizplus · Accepted Answer

To close the GDP gap of $0.5 trillion, Congress should lower taxes by an amount less than $500 billion, considering the multiplier effect, which will increase aggregate demand and move the economy towards potential GDP.

Suppose Real GDP Is $12