Explain how fiscal policy can correct a contractionary ga
What will be an ideal response?
A contractionary gap can be closed by an increase in aggregate demand. By increasing government spending or reducing taxes, aggregate demand increases, thereby raising the level of real GDP.
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If the government reduces expenditure on goods and services by $30 billion, then aggregate demand
A) increases by $30 billion and real GDP increases. B) decreases by more than $30 billion and real GDP decreases. C) increases by more than $30 billion and real GDP increases. D) decreases by $30 billion and real GDP decreases. E) increases and potential GDP increases.
All of the following are shortcomings of GDP as a measure to human well-being except it:
a. Excludes quality improvements that do not increase price or quantity sold. b. Excludes international transactions. c. Excludes black market and underground transactions. d. Counts harmful and dangerous output the same as useful output. e. Excludes non-market transactions.