With keeping tax rate (T) constant if government purchases(G) increase, then arrange the following statement considering the effect on total income and output.
(A) Rise in Plan Aggregate expenditure.
(B) Government runs a deficit when G exceeds T.
(C) Equilibrium income level increased.
(D) Aggregate demand schedule shifts upward.
Choose the correct answer from the options given below:
With keeping tax rate (T) constant if government purchases(G) increase, then arrange the following statement considering the effect on total income and output.
(A) Rise in Plan Aggregate expenditure.
(B) Government runs a deficit when G exceeds T.
(C) Equilibrium income level increased.
(D) Aggregate demand schedule shifts upward.
Choose the correct answer from the options given below:
Solution
When government purchases increase with constant tax rate, the logical sequence is:
(B) First, the government runs a deficit when G exceeds T (this is the immediate fiscal impact/accounting reality);
(A) Then, planned aggregate expenditure rises (since G is a component of AE = C + I + G + NX);
(D) This causes the aggregate demand schedule to shift upward;
(C) Finally, through the multiplier effect, the equilibrium income level increases.
This sequence correctly captures the chain of events from fiscal policy change to macroeconomic outcome. -> correct
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