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 closing the GDP gap here?
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 total aggregate demand is $555 billion ($400B + $40B + $90B + $25B), which is below the full-employment GDP of $600 billion. To close this GDP gap, increasing government spending and decreasing taxes would boost aggregate demand, moving the economy towards full employment.

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