Consider a simple macro model with a constant price level and demand-determined output.The inclusion of government in such a model affects desired aggregate expenditure directly through ________ and indirectly through ________.
A)the net taxes; the government purchases of goods and services
B)the net taxes; its effect on disposable income
C)the government purchases of goods and services; its effect on net exports
D)the government purchases of goods and services; its effect on disposable income
E)the government purchases of goods and services; its effect on investment

Question

Quizplus · Accepted Answer

The inclusion of government affects desired aggregate expenditure directly through the government purchases of goods and services (as this is a direct injection into the economy) and indirectly through its effect on disposable income (since government taxes and transfers affect the income available to households, which in turn influences their consumption spending).

Consider a Simple Macro Model with a Constant Price Level