A Reduction in Taxes, Combined with an Increase in Government

Multiple Choice

A reduction in taxes, combined with an increase in government purchases in an economy, would:

A) increase aggregate demand and close a recessionary gap in the economy.
B) decrease aggregate demand and create a recessionary gap in the economy
C) leave aggregate demand unchanged and create a recessionary gap in the economy.
D) have an indeterminate effect on aggregate demand and close a recessionary gap in the economy.
E) have an indeterminate effect on aggregate demand and create a recessionary gap in the economy