Suppose That Real GDP Equals Potential GDP, but the Government

question 74

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 governmentʹs fiscal policy,

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

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Definitions:

Period Cost

Costs that are not directly tied to the production process and are expensed in the accounting period in which they are incurred.

Insurance Expired

The portion of an insurance premium that has been used up during the policy term, representing a cost for the period.

Administrative Facilities

Facilities utilized for administrative purposes, including offices, meeting rooms, and support areas that help in the management and operation of an organization.

Indirect Costs

Costs not directly tied to a specific product, project, or activity, such as utilities, rent, and administrative expenses that support the overall operation.