Macroeconomics: Determination of Income and Employment · Class 12 · CBSE · Commerce Economics
Which combination of measures is most appropriate for correcting deficient demand in an economy?
Practice question from Macroeconomics: Determination of Income and Employment (Class 12 · CBSE · Commerce Economics), with the correct answer and a step-by-step solution.
hard · MCQ · Q-F88C54
Which combination of measures is most appropriate for correcting deficient demand in an economy?
- A.Increase government expenditure and reduce the income tax rateCorrect answer
- B.Reduce government expenditure and increase the income tax rate
- C.Increase the bank rate and sell government securities
- D.Increase the cash reserve ratio and reduce government expenditure
Solution
Deficient demand means that aggregate demand is insufficient to purchase the output produced at the full-employment level. Expansionary fiscal policy, through higher government expenditure and lower taxes, raises aggregate demand and helps correct the deficiency.
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