right by $10 million.
C) Left by $10 million
D) Left by $40 million
Q8. If the economy is growing beyond potential real GDP (Inflationary gap), which of the following
would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply
(potential/full employment output)?
A) An increase in the money supply and a decrease in interest rates.
B) An increase in government purchases.
C) An increase in oil prices.
D) An increase in taxes.
Q9.For a model economy, the mpc (marginal propensity to consume) is 0.8
Current GDP is $60 million. Potential GDP is $100 million. To reach full employment (overcome
recessionary gap), government spending must
A) decrease by $40 million
B) increase by $8 million
C) decrease by $8 million
D) Increase by $40 million