5.2. Which of the following fiscal policies would be most likely to return the e

Question

5.2. Which of the following fiscal policies would be most likely to return the economy to the natural rate of output of $6 trillion?




A. A decrease in income taxes

B. A decrease in the spending multiplier

C. A reduction in military spending

D. A decrease in the money supply

The federal government decides to increase government purchases by $100 billion. Aggregate demand will increase by:




A. Less than $100 billion

B. Not enough information is available to assess the increase

C. More than $100 billion

D. $100 billion

Explanation / Answer

Assuming current rate of output is below the natural rate of output, A. A decrease in income taxes C. More than $100 billion

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