Short Run Fiscal Actions Practice Test

Given an inflationary gap in the short run, the government is considering a discretionary fiscal policy change. Which option is most consistent with reducing AD while acknowledging that the effect may be partial due to implementation and multiplier uncertainty?

Assume actual real GDP is above potential and inflation is accelerating.

Given the recessionary gap described below (short run), which outcome is the most likely short-run effect of an expansionary discretionary fiscal policy, assuming it is not perfectly effective?

Potential output is $Y^* = 15.0$ trillion and current real GDP is $14.4$ trillion. The government enacts a temporary increase in government purchases.