Figure 27-7
-Refer to Figure 27-7. Given that the economy has moved from A to B in the graph above, which of the following would be the appropriate fiscal policy to achieve potential GDP?
A) increase taxes
B) increase government spending
C) contractionary fiscal policy
D) decrease interest rates

Question

Figure 27-7 
-Refer to Figure 27-7. Given that the economy has moved from A to B in the graph above, which of the following would be the appropriate fiscal policy to achieve potential GDP?
A) increase taxes 
B) increase government spending 
C) contractionary fiscal policy 
D) decrease interest rates

Quizplus · Accepted Answer

Increasing government spending is an expansionary fiscal policy that can help the economy move towards potential GDP by boosting aggregate demand.

Figure 27-7 -Refer to Figure 27-7. Given That the Economy Has Moved