Suppose that real GDP equals potential GDP, but the government believes that the economy is in a below full-employment equilibrium. As a result, the government increases its expenditure on goods and services. In response to the government's fiscal policy

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Drake Hammond

Business

31 December, 07:36

Suppose that real GDP equals potential GDP, but the government believes that the economy is in a below full-employment equilibrium. As a result, the government increases its expenditure on goods and services. In response to the government's fiscal policy

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Gisselle Orr · Answer 1

In response to the government's fiscal policy Aggregate demand will be increased.

When the government increases its expenditure on goods and services, the number of the products that sold in the market will increase. This condition will automatically increase the amount of offer that consumers made to buy it.