Answer:
The government would want the economy to contract when real GDP is;
C. Above potential GDP and the price level is rising.
Step-by-step explanation:
An economy can be described as either expanding or contracting with regards to the supply of money in that particular economy.
Further explanations are as follows;
1. Expanding economy
An expanding economy is an economy where the money supply is very high. This is usually characterized by an increase in the nominal output in an economy, this as a result caused the gross domestic product to increase too. This simply means that the working population are very productive or the consumer spending is very high.
An expanding economy causes the prices of goods to go up causing an inflation since the money supply in the economy is high, the banks also charge a high interest rate.
2. Contracting economy
A contracting economy is an economy where the money supply is very low. This is usually characterized by a decrease in the nominal output in an economy, this as a result caused the gross domestic product to decrease too. A reduction of the money supply in an economy decreases the consumer spending.
An contracting economy causes the prices of goods to go down causing a deflation since the money supply in the economy is low, the banks also charge a lower interest rate.
In our case, if the government want the economy to contract then it means that the economy is in expansion and thus real GDP is above the potential GDP and the price is rising