Consider the following statement: "Real GDP is currently $17.7 trillion, and potential real GDP is $17.4 trillion. If Congress and the president would decrease government purchases by $300 billion or increase taxes by $300 billion, the economy could be brought to equilibrium at potential GDP." If government purchases were to decrease by $300 billion or if taxes were increased by $300 billion, the equilibrium level of real GDP would decrease by

A. exactly $300 billion.

B. less than $300 billion.

C. more than $300 billion.

D. None of the above; equilibrium real GDP would actually increase.

Therefore the statement above is __.

Question

Business

Precious Adkins

16 April, 17:22

Consider the following statement: "Real GDP is currently $17.7 trillion, and potential real GDP is $17.4 trillion. If Congress and the president would decrease government purchases by $300 billion or increase taxes by $300 billion, the economy could be brought to equilibrium at potential GDP." If government purchases were to decrease by $300 billion or if taxes were increased by $300 billion, the equilibrium level of real GDP would decrease by

A. exactly $300 billion.

B. less than $300 billion.

C. more than $300 billion.

D. None of the above; equilibrium real GDP would actually increase.

Therefore the statement above is __.

+3

Answers (1)

Know the Answer?

Desmond Santos · Answer 1

C. more than $300 billion.

Explanation:

option (C) because a decrease in gdp will be more than a decrease iin govt expenditure or a rise in govt tax, because of multplier effect.

The given statement is False.