Price level (GDP price index, 2005-100) 130 120 110 100 90 PotentialAS GDP AD 0

Question

Price level (GDP price index, 2005-100) 130 120 110 100 90 PotentialAS GDP AD 0 115 12.0 125 13.013.5 14.0 Real GDP (trilions of 2005 dollars) 30) An economy is at a short-run equilibrium as illustrated in the above figure at point a An appropriate fiscal policy option to move the economy to full employment at potential GDP is to A) decreass government expenditure and move the economy to a full-employment equilibrium at point c B) increass tax rates and move the economy to a full-employment equilibrium at point c. C) uncrease government expenditure, shifting aggregate demand and moving the economy to a full-employment equilibrium at point b D) ncrease tax rates and move the economy to a full-employment equilibrium at point b. E) increase the interest rate by increasing the quantity of money and move the economy to a full- employment equilibrium at point b (Ctrl) ,

Explanation / Answer

Answer-C.

Increase in government expenditure will increase the disposable income of the people.If disposable income rises,the aggregate demand rises and AD shifts to the right.Equilibrium is attained at point b.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.