ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Such fiscal policy has a multiplier effect. That is, every dollar spent can be expected to cause an increase in the gross domestic product (GDP) by more than a dollar. This is due to the sheer momentum created by the policy. Consumers spend more so businesses produce more goods.

Detailed explanation-2: -The correct answer to the given question is option c. An increase in income taxes. An increase in income taxes leads to decrease in disposable income for consumers thereby dampening the aggregate demand for goods and services.

Detailed explanation-3: -Real GDP is an inflation-adjusted measurement of a country’s economic output over the course of a year. The U.S. GDP is primarily measured based on the expenditure approach and calculated using the following formula: GDP = C + G + I + NX (where C=consumption; G=government spending; I=Investment; and NX=net exports).

Detailed explanation-4: -Answer and Explanation: The correct answer is A. A decrease in price level. Aggregate demand shifts favorably when the money supply increases and enable more consumer purchasing power.