Consider the basic AD/AS model, and suppose there is a negative output gap. If an expansionary fiscal policy is pursued and the AS curve shifts leftward unexpectedly, the fiscal policy may be , and real GDP may
Potential GDP.
A) too weak; stay below
B) too weak; rise above
C) too strong; stay below
D) too strong; rise above
E) appropriate; equal

Question

Quizplus · Accepted Answer

If the AS curve shifts leftward unexpectedly, it can offset the effects of the expansionary fiscal policy, making it too weak to close the negative output gap, and real GDP may stay below potential GDP.

Consider the Basic AD/AS Model, and Suppose There Is a Negative