You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $400 billion; (2) investment = $40 billion; (3) government purchases = $90 billion; and (4) net export = $25 billion.If the full-employment level of GDP for this economy is $600 billion, then what combination of actions would be most consistent with the goal of achieving full employment?
A)increase government spending and taxes
B)decrease government spending and taxes
C)decrease government spending and increase taxes
D)increase government spending and decrease taxes

Question

Quizplus · Accepted Answer

The current aggregate demand is $555 billion ($400 billion + $40 billion + $90 billion + $25 billion). The economy needs to reach full employment level of $600 billion GDP. To achieve this, the government needs to increase its spending and decrease taxes to stimulate aggregate demand. Choice D, increase government spending and decrease taxes, is consistent with this approach.

You Are Given the Following Information About Aggregate Demand at the Existing