Ignoring any supply-side effects, if government expenditure on goods and services decrease by $10 billion and taxes decrease by $10 billion, then real GDP ________ and the price level ________.

Question

Quizplus · Accepted Answer

If government expenditure on goods and services decrease by $10 billion and taxes decrease by $10 billion, then there will be a decrease in aggregate demand as consumers will have less disposable income to spend. This will lead to a decrease in real GDP. Additionally, with a decrease in demand, prices will fall because businesses will lower prices to attract buyers, resulting in a decrease in the price level.

Ignoring Any Supply-Side Effects, If Government Expenditure on Goods and Services