The Government Wishes to Reduce He Price Level  by Reducing

question 9

Multiple Choice

The government wishes to reduce he price level  by reducing real GDP by $400 billion. Assuming a tax multiplier of 4 and a government spending multiplier of 5, which of the following policy prescriptions would reduce the aggregate demand curve  by $400 billion?

• A) Decreasing government spending by $400 billion and increasing taxes by $100 billion .
• B) Decreasing government spending by $160 billion and decreasing taxes by $100 billion.
• C) Decreasing government spending by $40 billion and decreasing taxes by $40 billion.
• D) Decreasing government spending by $100 billion  and keeping taxes the same.

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Definitions:

Real Estate

Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water.

Corporate Tax System

The regulatory framework governing how businesses are taxed on their profits by the government, including tax rates and allowable deductions.

Progressive

Referring to a tax system where the tax rate increases as the taxable amount increases, ensuring higher earners pay more in taxes.

Capital Gains

The increase in value of an asset or investment over its purchase price, realized upon the sale of the asset.