Figure 16-7.

-Refer to Figure 16-7. If the economy is at point b, a policy to restore full employment would be
A) an increase in the money supply.
B) a decrease in government purchases.
C) an increase in taxes.
D) All of the above are correct.

Question

Figure 16-7.
 
-Refer to Figure 16-7. If the economy is at point b, a policy to restore full employment would be
A) an increase in the money supply. 
B) a decrease in government purchases. 
C) an increase in taxes. 
D) All of the above are correct.

Quizplus · Accepted Answer

At point b, the economy is producing below full employment level output, which indicates that there is a shortfall in aggregate demand. An increase in the money supply would shift the aggregate demand curve to the right, leading to an increase in output and employment towards the full employment level. Therefore, choice A is the best option to restore full employment. Choice B and C are incorrect because they would decrease aggregate demand further, worsening the situation. Choice D is incorrect because only choice A is the correct policy option.

Figure 16-7. -Refer to Figure 16-7. If the Economy Is at Point