Question

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 __.

Answer 1

C. more than $300 billion.

Step-by-step 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.