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:

World Price

The global market price of a good or service, influenced by worldwide demand and supply.

Tariff

A tax imposed by a government on goods and services imported from other countries, often used to protect domestic industries from foreign competition.

Producer Surplus

The difference between the amount producers are willing to accept for a good or service and the actual amount they receive, reflecting profits.

Deadweight Loss

A loss of economic efficiency that can occur when equilibrium for a good or service is not achieved or is unachievable.