Figure 16-2
-Refer to Figure 16-2.In the graph above,if the economy is at point A,an appropriate fiscal policy by the Congress and the president would be to
A)decrease the required reserve ratio.
B)sell government securities.
C)increase government expenditures.
D)decrease transfer payments.

Question

Figure 16-2 
-Refer to Figure 16-2.In the graph above,if the economy is at point A,an appropriate fiscal policy by the Congress and the president would be to
A)decrease the required reserve ratio. 
B)sell government securities. 
C)increase government expenditures. 
D)decrease transfer payments.

Quizplus · Accepted Answer

At point A, the economy is experiencing a recessionary gap, which means that actual GDP is below potential GDP. To close this gap, the government should use expansionary fiscal policy, which involves increasing government expenditures or decreasing taxes. Option C is the only choice that represents an increase in government expenditures. Options A, B, and D are all contractionary fiscal policies and would only worsen the recessionary gap.

Figure 16-2 -Refer to Figure 16-2.In the Graph Above,if the Economy Is