In a Certain Year, the Aggregate Amount Demanded at the Existing

question 223

Multiple Choice

In a certain year, the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government
Purchases. Full-employment GDP is $120 billion. To obtain price-level stability under these conditions,
The government should

• A) increase tax rates and/or reduce government spending.
• B) discourage personal saving by reducing the interest rate on government bonds.
• C) increase government expenditures.
• D) encourage private investment by reducing corporate income taxes.

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Definitions:

Labor Market

The marketplace in which employers find workers and workers find jobs, characterized by the supply and demand for labor.

Wage Rate

The wage rate is the amount of money paid to a worker per unit of time, often hourly or annually, in exchange for their labor in producing goods or services.

Productive Workers

Individuals who efficiently produce goods or services, contributing to the overall output of a business or economy.

Marginal Expenditure

The additional cost incurred from purchasing or producing one more unit of a good or service.