Based on our understanding of the model presented in Chapter 3,we know with certainty that an equal and simultaneous reduction in G and T will cause

Question

Quizplus · Accepted Answer

According to the model, a reduction in government spending (G) or an increase in taxes (T) both lead to a decrease in aggregate demand, which in turn leads to a reduction in output (GDP). Therefore, an equal and simultaneous reduction in G and T would result in a further decrease in aggregate demand and output, resulting in a reduction in output (option C). An increase in investment, as mentioned in option D, is not necessarily implied by the model in this scenario.

Based on Our Understanding of the Model Presented in Chapter