For the following questions,use the diagram below:
Figure 24-7.
-Refer to Figure 24-7.If the economy is at point b,a policy to restore full employment would be

Question

For the following questions,use the diagram below:
Figure 24-7. 
-Refer to Figure 24-7.If the economy is at point b,a policy to restore full employment would be

Quizplus · Accepted Answer

At point b, the economy is below the potential output level, meaning there is a recessionary gap. To restore full employment, an increase in the money supply would increase aggregate demand and shift it to the right, closing the gap and bringing the economy back to potential output level. Decreasing government purchases or increasing taxes would decrease aggregate demand further, worsening the recessionary gap.

For the Following Questions,use the Diagram Below