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)appropriate; equal
B)too strong; rise above
C)too weak; stay below
D)too weak; rise above
E)too strong; stay below

Question

Quizplus · Accepted Answer

If the AS curve shifts leftward unexpectedly, it indicates a decrease in aggregate supply, which can counteract the effects of expansionary fiscal policy. This means the fiscal policy might be too weak to close the negative output gap, and real GDP may remain below potential GDP.

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