Use the Following to Answer Questions

question 362

Multiple Choice

Use the following to answer questions:
Figure: Fiscal Policy Options
-(Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD":

• A)the economy is in long-run equilibrium.
• B)an expansionary fiscal policy may be warranted.
• C)a contractionary fiscal policy may be warranted.
• D)the economy is in a recessionary gap.

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Definitions:

Potential GDP

An estimate of the maximum output an economy can produce when it is most efficiently utilizing all available resources.

Fiscal Policy

Government policies related to taxation and spending that aim to influence the economy's overall activity.

Implementation

Implementation involves the process of putting a decision or plan into effect to achieve intended or expected results.

Permanent Income

Income that individuals expect to receive on average over the long term.