An increase in government spending, with taxes unchanged, directly increases aggregate demand through
Correct answer: A. Higher public expenditure on goods and services
- A. Higher public expenditure on goods and services
- B. Lower household income available for consumption
- C. Reduced exports caused by currency appreciation
- D. Lower business investment caused by taxation
Explanation
Government purchases are a direct component of aggregate demand, so higher public spending shifts aggregate demand to the right. The other options describe possible effects that do not represent the direct spending channel.
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About Macroeconomics
The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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