In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $200 billion. To obtain full employment under these conditions the government should:

reduce tax rates and/or increase government spending.

encourage personal saving by increasing the interest rate on government bonds.

discourage private investment by increasing corporate income taxes.

decrease government expenditures.

ANSWER:

reduce tax rates and/or increase government spending.