Assume that an economy's income multiplier is 2 and that this economy is in equilibrium at $500 billion. If the government wants to move this economy to full-employment at $600 billion, while maintaining a balanced budget, it must choose which of the following options?
a. increase government spending and taxes by $100 billion
b. decrease government spending and taxes by $100 billion
c. increase government spending and taxes by $200 billion
d. decrease government spending and taxes by $200 billion
e. raising the equilibrium level of income while maintaining a balanced budget is impossible
A
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Evaluate this statement: “A monopolistic ally competitive industry would be more efficient if there were fewer firms.”
What will be an ideal response?
The main reason why the economy’s aggregate supply curve slopes upward is that
A. as the price level rises, businesses incur additional costs. B. businesses typically purchase labor and other inputs under long-term contracts that fix the cost of the input in money terms. C. as the price level rises, workers have higher real wages to spend for additional consumer goods. D. All of these responses are correct.