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Economy is performing under full employment

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Recently the economy is performing under full employment. It means the level of real GDP is less than the potential GDP. The government decided to apply an expansionary fiscal policy and is looking to move the aggregate demand curve to the right side. One economist believes the best policy is a balanced budget fiscal policy. The second one thinks the government needs to decrease taxes and the third economist offers an increase in government expenditures. a) What do you think? Which economist is right and why? b) What will happen to the policy if workers have rational expectations, and they know the government is using an expansionary fiscal policy?

Reference no: EM133311723

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