Figure 18-7

-Refer to Figure 18-7.Given that the economy has moved from A to B in the graph above,which of the following would be the appropriate fiscal policy to achieve potential GDP?

Question

Figure 18-7
 
-Refer to Figure 18-7.Given that the economy has moved from A to B in the graph above,which of the following would be the appropriate fiscal policy to achieve potential GDP?

Quizplus · Accepted Answer

Since the economy has moved from point A to point B, it is below potential GDP. To achieve potential GDP, fiscal policy should be expansionary. Option A and C involve contractionary fiscal policies which would further push the economy away from potential GDP. Option D involves monetary policy, not fiscal policy. Therefore, the appropriate fiscal policy to achieve potential GDP is to increase government spending, as this will increase aggregate demand and stimulate economic growth.

Figure 18-7 -Refer to Figure 18-7.Given That the Economy Has Moved from Economy