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 right unexpectedly, the fiscal policy may be , and real GDP may _ _ potential GDP.
A)too strong; rise above
B)too weak; stay below
C)too weak; rise above
D)appropriate; equal
E)too strong; stay below

Question

Quizplus · Accepted Answer

If expansionary fiscal policy is pursued and the AS curve shifts right unexpectedly, the combined effect may cause real GDP to rise above potential GDP, indicating that the fiscal policy was too strong.

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