-In Panel (b)of Exhibit 20A-1,the economy is initially in short-run equilibrium at real GDP level Y₁ and price level P₂.If the federal government decides to intervene,it would most likely:
A) increase taxes.
B) decrease the money supply.
C) increase the level of government spending for goods and services.
D) decrease the level of government spending for goods and services.

Question

-In Panel (b)of Exhibit 20A-1,the economy is initially in short-run equilibrium at real GDP level Y₁ and price level P₂.If the federal government decides to intervene,it would most likely:
A) increase taxes. 
B) decrease the money supply. 
C) increase the level of government spending for goods and services. 
D) decrease the level of government spending for goods and services.

Quizplus · Accepted Answer

Increasing the level of government spending for goods and services is a fiscal policy tool used to stimulate the economy, increase aggregate demand, and move the economy towards a higher real GDP level.

-In Panel (B)of Exhibit 20A-1,the Economy Is Initially in Short-Run