If policymakers implement a contractionary fiscal policy after a positive demand shock, but do not take into account the potential for crowding out, the new equilibrium level of GDP is likely to A. be at potential GDP. B. be above potential GDP. C. be below potential GDP. D. There is insufficient information given here to draw a conclusion.
Added by Gabriel C.
Close
Step 1
Step 1: The question asks what will happen to the equilibrium level of GDP if policymakers implement a contractionary fiscal policy after a positive demand shock, without considering crowding out. Show more…
Show all steps
Your feedback will help us improve your experience
Jennifer Stoner and 61 other Microeconomics educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Key Concepts
Recommended Videos
A country is experiencing a recession due to an unexpected shock to aggregate demand. The economy’s current level of real GDP is below its long-run equilibrium and the price level is below the equilibrium price level. Government officials must decide whether to implement fiscal policy or allow the economy to return to full employment on its own.
Jennifer S.
6. The economy is in a recession. There is a significant decrease in aggregate demand. The unemployment rate is above the natural rate of unemployment and the real GDP is below the full-employment output. Which of the following statements is correct? A. There is downward pressure on the price level, and the government may want to conduct a contractionary fiscal policy to revive the economy. B. The economy is slipping into a recession, and the government may want to conduct an expansionary fiscal policy to revive the economy. C. There is upward pressure on the price level, and the government may want to conduct a contractionary fiscal policy to revive the economy. D. The economy is overheating, and the government may want to conduct a contractionary fiscal policy to revive the economy.
Nick J.
Rashmi S.
Recommended Textbooks
Principles of Economics
Principles of Microeconomics for AP® Courses
Economics
Transcript
18,000,000+
Students on Numerade
Trusted by students at 8,000+ universities
Watch the video solution with this free unlock.
EMAIL
PASSWORD