If an economy has a GDP gap,such that equilibrium output is less than full-employment output,which of the following is a correct fiscal-policy action?
A) A reduction in Social Security payments
B) An increase in the money supply
C) An increase in government expenditures
D) An increase in the tax rate

Question

Quizplus · Accepted Answer

An increase in government expenditures is the correct fiscal-policy action to address a GDP gap where equilibrium output is less than full-employment output. This is because the increase in government expenditures will increase aggregate demand and stimulate economic activity, leading to an increase in output and employment. The other options are not appropriate for addressing a GDP gap. A reduction in Social Security payments would decrease aggregate demand and worsen the gap, an increase in the money supply would lead to inflation, and an increase in the tax rate would decrease consumer spending and also worsen the gap.

If an Economy Has a GDP Gap,such That Equilibrium Output