An economy is in a below full-employment equilibrium. Fiscal stimulus that retur

Question

An economy is in a below full-employment equilibrium. Fiscal stimulus that returns the economy to full employmentaggregate demand and real GDP, and the price level O A. increases; falls O B. increases; rises C. decreases; falls 0 D. does not change, does not change The fiscal stimulus that returns the economy to full employment from a below full-employment equilibrium A. O B. must be an increase in government expenditure must be a decrease in taxes C. could be an increase in government expenditure and an equal increase in taxes D. could be a decrease in government expenditure and an equal decrease in taxes

Explanation / Answer

1- fiscal stimlus that brings back the economy to the full employment from belwo the full employment level will increase the aggregate demand and the price level is increased.

so answer is B

2- the fiscal stimlus that brings the economy back to full employment level should be an increase in government expenditure because this will lead to the maximum increase in output as the spendings multiplier value is higher than tax multiplier value.

so answer is A

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