If real GDP is less than potential GDP, which of the following fiscal policies would increase real GDP?
A) only a decrease in government expenditure
B) only an increase in taxes
C) an increase in government expenditure and/or a decrease taxes
D) a decrease in government expenditure and/or an increase taxes

Question

Quizplus · Accepted Answer

An increase in government expenditure and/or a decrease in taxes can stimulate economic activity, leading to an increase in real GDP, especially when the economy is operating below its potential GDP. This is because both measures can increase aggregate demand, encouraging production and potentially reducing the gap between real and potential GDP.

If Real GDP Is Less Than Potential GDP, Which of the Following