If an economy is at potential GDP and an expansionary policy is correctly anticipated,the result will be
A)both c and e
B)little or no increase in GDP
C)an increase in wages along with a dramatically falling price level
D)a rapidly expanding economy
E)a severe recession

Question

Quizplus · Accepted Answer

If an economy is already at potential GDP, then there is little room for further growth without causing inflationary pressures. If an expansionary policy is anticipated, individuals and firms will adjust their behavior and there may be little to no effect on GDP. Therefore, the best choice is B, which states there will be little or no increase in GDP.

If an Economy Is at Potential GDP and an Expansionary