Suppose That Real GDP Equals Potential GDP, but the Government

Multiple Choice

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,

A) an equilibrium with real GDP less than potential GDP will occur.
B) aggregate demand will increase.
C) potential GDP decreases.
D) None of the above answers is correct..