Assume the Economy Is in Short-Run Equilibrium at a Real

question 5

Multiple Choice

Assume the economy is in short-run equilibrium at a real GDP below its potential real GDP. According to Keynesian theory, which of the following policies should be followed?

• A) The Federal Reserve should increase the money supply.
• B) The federal government should increase spending.
• C) The federal government should do nothing because the economy will self correct to potential real GDP.
• D) All of the above.

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Definitions:

Welfare Costs

Welfare costs refer to the expenses associated with providing social services and support to the needy members of a society, such as healthcare, education, and social security.

Absurdism

A philosophy stating that human beings exist in a purposeless, chaotic universe, and that the search for meaning or value is inherently futile.

DP Camps

Displaced Persons (DP) Camps were facilities in Europe for refugees and homeless individuals in the aftermath of World War II.