If an economy is at potential GDP and an expansionary policy is correctly anticipated,the result will be:
A)a short-run fall in output and employment.
B)little or no increase in GDP.
C)an increase in wages along with a dramatic fall in the price level.
D)a rapidly expanding economy.
E)a severe recession.

Question

Quizplus · Accepted Answer

If an economy is already operating at potential GDP, then there is no room for further growth in output in the short run. An expansionary policy would therefore have little effect on GDP and would likely result in inflation instead. The correct anticipation of the policy would not change this outcome.

If an Economy Is at Potential GDP and an Expansionary