Use the following figure to answer the questions : Figure9.8

-In Figure 9.8,if full-employment income is produced at $400 billion,the government can reduce a recessionary gap by
A)Decreasing government spending.
B)Decreasing investment spending.
C)Decreasing income taxes on consumers.
D)Increasing taxes.

Question

Use the following figure to  answer the questions : Figure9.8

-In Figure 9.8,if full-employment income is produced at $400 billion,the government can reduce a recessionary gap by
A)Decreasing government spending. 
B)Decreasing investment spending. 
C)Decreasing income taxes on consumers. 
D)Increasing taxes.

Quizplus · Accepted Answer

Decreasing income taxes on consumers would increase disposable income, leading to an increase in consumption spending and therefore aggregate demand. This would help to fill the recessionary gap and move the economy towards full-employment output. Decreasing government spending or investment spending would have the opposite effect, further reducing aggregate demand and worsening the recessionary gap. Increasing taxes would also decrease disposable income and consumption spending, exacerbating the recessionary gap.

Use the Following Figure to Answer the Questions