Table 16-1

-Refer to Table 16-1.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2018 and in 2019 if Congress and the president do not use fiscal policy.If Congress and the president want to keep real GDP at its potential level in 2019,they should
A)decrease income taxes.
B)decrease government purchases.
C)decrease the money supply.
D)increase the level of interest rates.

Question

Table 16-1
 
-Refer to Table 16-1.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2018 and in 2019 if Congress and the president do not use fiscal policy.If Congress and the president want to keep real GDP at its potential level in 2019,they should
A)decrease income taxes. 
B)decrease government purchases. 
C)decrease the money supply. 
D)increase the level of interest rates.

Quizplus · Accepted Answer

In order to keep real GDP at its potential level, Congress and the president should consider decreasing income taxes. This would stimulate consumption and investment, leading to higher aggregate demand and potentially increasing real GDP. Decreasing government purchases or decreasing the money supply would likely decrease aggregate demand and lead to a potential decrease in real GDP. Increasing the level of interest rates could also decrease aggregate demand and potentially decrease real GDP.

Table 16-1 -Refer to Table 16-1.Consider the Hypothetical Information in the Table