Assume the economy is operating below full employment.Which of the following policy actions will allow aggregate spending to increase but will not increase the size of the government in the process?

Question

Quizplus · Accepted Answer

If the economy is operating below full employment, aggregate spending needs to increase to stimulate economic growth. Decreasing tax rates will lead to an increase in disposable income, which will result in increased consumer spending. This policy action will not increase the size of the government as it does not involve an increase in government spending. Option A involves an increase in government spending, which will increase the size of the government, and option C involves an increase in both government spending and taxes, which may not have the desired effect of stimulating spending. Option D involves decreasing government spending, which may lead to a decrease in aggregate demand and further slow down economic growth.

Assume the Economy Is Operating Below Full Employment