Figure 11.1 shows the relationship between the price level and the real GDP.If the government wants the economy to be at full employment,it should _____.
Figure 11.1

A)increase taxes
B)decrease transfer payments
C)decrease government purchases
D)wait for the SRAS curve to shift to the left
E)increase its purchases

Question

Figure 11.1 shows the relationship between the price level and the real GDP.If the government wants the economy to be at full employment,it should _____. ​
Figure 11.1

A)increase taxes 
B)decrease transfer payments 
C)decrease government purchases 
D)wait for the SRAS curve to shift to the left 
E)increase its purchases

Quizplus · Accepted Answer

In Figure 11.1, we can see that the intersection of the AD and SRAS curves at point A represents full employment equilibrium. Therefore, to achieve full employment, the government needs to increase its purchases, shifting the AD curve to the right, until it intersects with the SRAS curve at point A. This will increase the level of real GDP without affecting the price level. Additionally, increasing taxes or decreasing transfer payments or government purchases would likely decrease aggregate demand and lead to a decrease in real GDP. Waiting for the SRAS curve to shift to the left would result in a recession, where real GDP is less than the potential GDP at full employment.

Figure 111 Shows the Relationship Between the Price Level and the the Real