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 output is below potential output. To close this gap and stimulate economic growth, an appropriate fiscal policy would be to increase government expenditures, such as investing in infrastructure projects or providing subsidies to businesses to encourage investment and hiring. This would increase aggregate demand and result in higher levels of output and employment. Decreasing the reserve ratio or selling government securities would be more appropriate for controlling the money supply and managing inflation, which is not a concern in a recessionary gap. Decreasing transfer payments would likely worsen the recessionary gap by decreasing disposable income for households and reducing aggregate demand.

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