Suppose real GDP is $1.8 trillion and potential real GDP is $1.85 trillion.If the federal government increases government purchases by $50 billion, then the economy will be brought to equilibrium at potential real GDP.

Question

Quizplus · Accepted Answer

Increasing government purchases by $50 billion could stimulate the economy, but it does not guarantee that the economy will reach exactly the potential real GDP of $1.85 trillion due to factors like the multiplier effect, crowding out, and the state of the economy's output gap.

Suppose Real GDP Is $1