Question

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 $200 billion. To obtain full employment under these conditions, the government should

Answer 1

Answer: The answer is as follows:

Explanation:

For maintaining the full employment level under these conditions, the government should reduce the tax rate or increase the government spending.

The difference between the full employment level of GDP and current level of GDP is $30 Billion. So, if government wants to achieve the full employment level then the government should increase the government purchases and reduce the taxes. Hence, the GDP will be on full employment level.