If the economy is in an equilibrium with real GDP less than potential GDP,a fiscal stimulus could move the economy toward potential GDP by simultaneously ________ taxes and ________ government expenditures on goods and services.
A)raising;increasing
B)raising;decreasing
C)cutting;increasing
D)cutting;decreasing
E)raising;not changing

Question

Quizplus · Accepted Answer

Cutting taxes and increasing government expenditures both serve to boost aggregate demand, which can help close the gap between real GDP and potential GDP by stimulating economic activity.

If the Economy Is in an Equilibrium with Real GDP