Question

With keeping tax rate (T) constant if government purchases (G) increase, then arrange the following statements considering the effect on total income and output: (A) Rise in Plan Aggregate expenditure.
(B) Government runs a deficit when G exceeds T.
(C) Equilibrium income level increased.
(D) Aggregate demand schedule shifts upward.

• A. (B), (A), (D), (C)
• B. (A), (C), (B), (D)
• C. (A), (B), (D), (C)
• D. (C), (B), (D), (A)

Hint:

In Keynesian economics: Increase in G → higher planned expenditure → AD shifts upward → higher income/output.

Answer 1

The Correct Option is A

Step 1: Recall effect of increased government expenditure.
- If G rises while T (taxes) remain constant, initially government may run a deficit if G>T.
- Government spending increases planned aggregate expenditure.
- This shifts the aggregate demand (AD) curve upward.
- Finally, this leads to a new equilibrium where output and income are higher.
Step 2: Arrange sequence.
1. (B) Government runs deficit if G exceeds T.
2. (A) Rise in planned aggregate expenditure.
3. (D) Aggregate demand schedule shifts upward.
4. (C) Equilibrium income increases.
Final Answer: \[ \boxed{(B), (A), (D), (C)} \]