(Scenario: Fiscal Policy)Refer to Scenario: Fiscal Policy.If actual output is 500 billion arcs,to restore the economy to potential output the government should _____ by 25 billion arcs.
A) increase taxes
B) decrease taxes
C) increase spending
D) decrease spending

Question

Quizplus · Accepted Answer

To restore the economy to potential output, the government should increase spending by 25 billion arcs. This is because an increase in government spending would lead to an increase in aggregate demand, which would encourage businesses to produce more, leading to an increase in output.