-Refer to the figure above to answer this question.What is most likely to happen if the level of GDP is Y₁ and the government reduces its spending from G₁ to G₂ in an attempt to balance its budget? A)The budget would be balanced at the new GDP level Y₂. B)GDP would remain at Y₁,but the budget would be in deficit. C)GDP would be Y₂,and the budget would be in deficit. D)GDP would be Y₂,and the budget would be in surplus.

Question

Quizplus · Accepted Answer

When the government reduces its spending in an attempt to balance its budget, it can lead to a decrease in the overall demand within the economy. This reduction in demand can cause the GDP to decrease from its initial level (Y₁) to a new, lower level (Y₂). However, the reduction in GDP can also lead to lower tax revenues than anticipated, potentially resulting in a budget deficit rather than achieving a balanced budget or surplus.

-Refer to the Figure Above to Answer This Question