Suppose That Real GDP Equals Potential GDP, but the Government

question 54

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

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Definitions:

Constitutionality

The quality of being in accordance with a political constitution, especially with regard to its rights and freedoms.

Legislative Statutes

Laws that have been formally enacted by a legislative body, such as a parliament or congress.

Administrative Regulations

Rules and procedures established by governmental agencies to enforce laws and implement policy.

Electoral College

A body of electors established by the United States Constitution, formed every four years for the sole purpose of electing the president and vice president.