Exhibit 11-4

-Refer to the graph in the exhibit.Which one of the following sets of policies would move the economy to full employment?
A) increase government purchases, increase taxes, and decrease transfer payments
B) decrease government purchases, increase taxes, and decrease transfer payments
C) increase government purchases, decrease taxes, and increase transfer payments
D) increase government purchases, increase in taxes, and increase transfer payments

Question

Exhibit 11-4
 
-Refer to the graph in the exhibit.Which one of the following sets of policies would move the economy to full employment?  
A) increase government purchases, increase taxes, and decrease transfer payments 
B) decrease government purchases, increase taxes, and decrease transfer payments 
C) increase government purchases, decrease taxes, and increase transfer payments 
D) increase government purchases, increase in taxes, and increase transfer payments

Quizplus · Accepted Answer

According to the graph, the economy is operating below full employment. To move the economy to full employment, expansionary fiscal policy is needed, which can be achieved through an increase in government purchases or an increase in transfer payments. Since an increase in taxes will decrease aggregate demand, it should not be a part of the policy mix. Therefore, option C is the best choice as it includes an increase in government purchases, a decrease in taxes, and an increase in transfer payments, which will increase aggregate demand and move the economy towards full employment.

Exhibit 11-4 -Refer to the Graph in the Exhibit.Which One of the Exhibit.Which