For the following questions, use the diagram below:
Figure 21-7.
-Refer to Figure 21-7. If the economy is at point b, a policy to restore full employment would be
A)an increase in the money supply.
B)a decrease in government purchases.
C)an increase in taxes.
D)All of the above are correct.

Question

For the following questions, use the diagram below:
Figure 21-7. 
-Refer to Figure 21-7. If the economy is at point b, a policy to restore full employment would be
A)an increase in the money supply. 
B)a decrease in government purchases. 
C)an increase in taxes. 
D)All of the above are correct.

Quizplus · Accepted Answer

At point b, the economy is operating below full employment, which means there is a contractionary gap. To close this gap and restore full employment, the government can use expansionary policies such as increasing the money supply. This would increase aggregate demand, leading to an increase in output and employment levels. Therefore, option A is the best choice. Options B and C would have a contractionary effect on the economy and reduce output and employment levels further, making them inappropriate choices to restore full employment. Option D is incorrect as only option A is the appropriate policy to restore full employment.

For the Following Questions, Use the Diagram Below