Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP?
A)an increase in government purchases
B)an increase in the supply of money
C)an increase in individual income taxes
D)a decrease in transfer payments

Question

Quizplus · Accepted Answer

An increase in government purchases is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP because it will increase aggregate demand and stimulate economic growth. This policy will shift the aggregate demand curve to the right, leading to an increase in both real GDP and price level. B, C, and D are not appropriate discretionary fiscal policies in the given situation.

Which of the Following Is an Appropriate Discretionary Fiscal Policy