Suppose That Real GDP Equals Potential GDP, but the Government

question 17

Multiple Choice

Suppose that real GDP equals potential GDP, but the government believes that the economy is in a below full- employment equilibrium. As a result, the government increases its expenditure on goods and services. In response to the government's fiscal policy,

• A) an equilibrium with real GDP less than potential GDP will occur.
• B) aggregate demand will increase.
• C) potential GDP decreases.
• D) None of the above answers is correct..

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Definitions:

AASB 12/IFRS 12

Disclosures of Interests in Other Entities, a standard that sets the requirements for disclosing information about an entity's interests in subsidiaries, joint arrangements, associates, and unconsolidated structured entities.

Voting Rights

Rights granted to shareholders to vote on company matters, such as electing the board of directors or approving corporate policies.

Significant Judgements

Decisions made by management in the preparation of financial statements that have a significant impact on the amounts and disclosures in those financial statements, often requiring considerable estimates.

Consolidated Financial Statements

Financial statements of a group in which the assets, liabilities, equity, income, expenses, and cash flows of the parent company and its subsidiaries are presented as those of a single economic entity.