You Are Given the Following Information About Aggregate Demand at the Existing

question 131

Multiple Choice

You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $400 billion; (2) investment = $40 billion; (3) government purchases = $90 billion; and (4) net export = $25 billion. If the full-employment level of GDP for this economy is $600 billion, then what combination of actions would be most consistent with closing the GDP-gap here?

• A) Increase government spending and taxes
• B) Decrease government spending and taxes
• C) Decrease government spending and increase taxes
• D) Increase government spending and decrease taxes

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Definitions:

Cognition

The mental action or process of acquiring knowledge through thought, experience, and the senses.

Cognitive System

A conscious, rational, and controlled system of thinking.

Experiential System

Part of dual-process theories of cognition, referring to the intuitive, automatic, and often emotional way of processing information.

Schema

A mental structure, stored in memory, that is based on prior knowledge.