If the federal government lowers government expenditure:
A)aggregate expenditure will fall, leading to a decrease in equilibrium GDP.
B)aggregate expenditure will rise, leading to a rise in equilibrium GDP.
C)consumption and investment will decrease, leading to a fall in aggregate expenditure and a decrease in equilibrium GDP.
D)the government will experience a budget surplus, which will raise aggregate expenditure.

Question

Quizplus · Accepted Answer

Lowering government expenditure means decreased government spending, which reduces the amount of money flowing into the economy. This decrease in outflow leads to a fall in aggregate expenditure and ultimately, a decrease in equilibrium GDP.

If the Federal Government Lowers Government Expenditure