Suppose GDP is currently below the full employment level. The most appropriate stabilization policy would be to:

Question

Quizplus · Accepted Answer

To increase GDP, the most appropriate stabilization policy would be to increase the growth rate of the money supply. This would increase consumer spending and stimulate demand for goods and services, ultimately boosting economic growth. Increasing taxes or decreasing government spending would reduce consumer spending and have a contractionary effect on the economy, making it less likely to reach full employment. Increasing interest rates could also reduce consumer spending and investment, which would have a similar negative effect on the economy.

Suppose GDP Is Currently Below the Full Employment Level