Suppose That Real GDP Equals Potential GDP, but the Government

question 1

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