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 $120 billion. To obtain price level stability under these conditions the government should:
A. increase tax rates and/or reduce government spending.

Answer 1

Answer:

Option A is correct (increase tax rates and/or reduce government spending)

Explanation:

To maintain economic stability the government should increase taxes and limit spending