Figure 16-2
-Refer to Figure 16-2.In the graph above,if the economy is at point A,an appropriate fiscal policy by Congress and the president would be to
A)decrease the required reserve ratio.
B)sell government securities.
C)increase government expenditures.
D)decrease transfer payments.

Question

Figure 16-2 
-Refer to Figure 16-2.In the graph above,if the economy is at point A,an appropriate fiscal policy by Congress and the president would be to
A)decrease the required reserve ratio. 
B)sell government securities. 
C)increase government expenditures. 
D)decrease transfer payments.

Quizplus · Accepted Answer

Point A represents a recessionary gap, where the actual output is less than the potential output. To close this gap, Congress and the president should increase government expenditures, such as investments in infrastructure, to stimulate aggregate demand and increase output. Decreasing the required reserve ratio or selling government securities would be monetary policies, not fiscal policies. Decreasing transfer payments would have a contractionary effect on the economy and worsen the recessionary gap.

Figure 16-2 -Refer to Figure 16-2.In the Graph Above,if the Economy Is