This Question: 1 pt 8 of 1 1 (8 complete) This Quiz: 11 pts possib Price level (
ID: 1103230 • Letter: T
Question
This Question: 1 pt 8 of 1 1 (8 complete) This Quiz: 11 pts possib Price level (GDP pnce index, 2005 = 100) An economy is at a short - run equilibrium as illustrated in the figure. An appropriate fiscal policy option to move the economy to full employment is to increase Potential GDP AS 130 120 110 0 A, tax rates and move the economy to a full-employment equilibrium at point c 0 B. government expenditure and move the economy to a full-employment equilibrium at point b 100 ° C. tax rates and move the economy to a full-employment equilibrium at point b lower the interest rate by increasing the quantity of money and move the economy to a full employment equilibrium at point b 90 D. AD 0 E. government expenditure and move the economy to a full-employment 11.5 12.0 25 3.0 3.5 14.0 equilibrium at point c Real GDP (trillions of 2005 dollars)Explanation / Answer
Answer : [E] : Increase Government Expenditure and move the economy to a full employment equilibrium at point C
Justification : Increase in Government tool is a very important tool which is implemented to save the economy from recession by providing full employment.
It initiates public works like contracts of roadlayouts,water damns, Implementation of new electrical plants which eventually bring the equilibrium at point C.