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How does the government affect aggregate demand?

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Question

How does the government affect aggregate demand?

Options

  • Through Autonomous Consumption and inventories only

  • Through Government Expenditure (G) and Taxes (T)

  • Through Actual Output (Ex-post) only

  • Through households and firms only

MCQ
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Solution

Government affects aggregate demand through Government Expenditure \[G\] and Taxes \[T\]. Taxes reduce disposable income.

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