In an open economy with government and demand- determined output, an increase in the equilibrium level of national income could be caused by
A)a decrease in desired consumption at all levels of income.
B)a decrease in the desired level of saving at all levels of income.
C)a decrease in government purchases.
D)an increase in the desired level of imports at all levels of income.
E)an increase in taxes at all levels of income.

Question

Quizplus · Accepted Answer

In a demand-determined output setting, an increase in desired consumption or investment would increase the equilibrium level of national income. Similarly, a decrease in desired saving would increase spending and therefore increase the equilibrium level of national income. Choices A, C, D, and E would all decrease spending and dampen economic activity, so they would not increase the equilibrium level of national income.

In an Open Economy with Government and Demand- Determined Output