Question

If the government wishes to increase the level of real GDP, it might reduce: 
A. Taxes
B. Transfer payments
C. The size of the budget deficit
D. Its purchases of goods and services

Answer 1

Answer: Option (A) is correct.

Explanation:

If the government wishes to increase the level of real GDP, it might reduce Taxes.

This is due to the fact that if government reduces the transfer payment, size of budget deficit or its purchases of goods and services then as a result the level of real GDP deceases because of lower aggregate demand for the product.

Now, if government reduces the taxes, this will increase the individual's disposable income. So, this will results in higher aggregate demand and hence, increases the level of real GDP.