Question

Assume that an economy's real GDP multiplier is 2 and that this economy is in equilibrium at $500 billion. If the government wants to move this economy to full-employment at $600 billion, while maintaining a balanced budget, it must choose which of the following options?a. Increase government spending and taxes by $100 billionb. Decrease government spending and taxes by $100 billionc. Increase government spending and taxes by $200 billiond. Decrease government spending and taxes by $200 billion

Answer 1

a. Increase government spending and taxes by $100 billion

Step-by-step explanation:

Based on the information given it must Increase the government spending and taxes by $100 billion ($600 billion-$500 billion)which is the amount of $600 billion which represent the amount the goverment have in case they wants to move the economy to full-employment less the economy equilibrium at $500 billion which means it have to Increase the government spending and taxes by $100 billion which is the difference between $600 billion and $500 billion.