Suppose the current level of real GDP is below the full-employment level of real GDP. Which of the following represents a fiscal policy action that could be implemented to reduce the size of this recessionary gap?
A) Increase government spending.
B) Decrease interest rates.
C) Increase the money supply.
D) all of the above

Question

Quizplus · Accepted Answer

Increasing government spending would increase aggregate demand and help to increase real GDP towards the full-employment level. Decreasing interest rates and increasing the money supply are both monetary policy actions, not fiscal policy actions, and may not necessarily have a direct impact on increasing real GDP towards the full-employment level.

Suppose the Current Level of Real GDP Is Below the Full-Employment