You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $500 billion; (2) investment = $50 billion; (3) government purchases = $100 billion; and (4) net export = $20 billion.If the full-employment level of GDP for this economy is $620 billion, then what combination of actions would be most consistent with the goal of achieving price level stability?
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

Since the economy is already at the full-employment level of GDP, any further increase in demand could lead to inflation and thus would not be consistent with the goal of achieving price level stability. Option C, which involves decreasing government spending and increasing taxes, would decrease overall aggregate demand and help stabilize prices.

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