For the following questions,use the diagram below:
Figure 34-6.
-Refer to Figure 34-6.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 34-6. 
-Refer to Figure 34-6.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 experiencing a recessionary gap, which means that the actual real GDP is below the potential GDP, resulting in high unemployment levels. To restore full employment, the government should implement expansionary policies, such as increasing the money supply, which would lead to lower interest rates and boost investment and consumption. Thus, the correct choice is A, an increase in the money supply. Decreasing government purchases or increasing taxes would have contractionary effects, which could exacerbate the recessionary gap.

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