Figure 18-2

-Refer to Figure 18-2.In the graph above,if the economy is at point A,an appropriate fiscal policy by Congress and the president would be to

Question

Figure 18-2
 
-Refer to Figure 18-2.In the graph above,if the economy is at point A,an appropriate fiscal policy by Congress and the president would be to

Quizplus · Accepted Answer

Point A represents a recessionary gap where the actual output is below potential output. To close this gap and stimulate economic growth, fiscal policy should be expansionary, meaning either increase government spending or decrease taxes. Among the given options, increasing government transfer payments is the most appropriate choice. This will increase disposable income and aggregate demand, leading to an increase in output, employment, and prices. Lowering discount rates or executing open-market sales will be ineffective as the problem is not a liquidity shortage, and increasing tax rates may further reduce consumption and investment, aggravating the recession.

Figure 18-2 -Refer to Figure 18-2.In the Graph Above,if the Economy Is