Author Question: The largest component of GDP in the US is typically: a. government purchases. b. social ... (Read 51 times)

pragya sharda · **on:** Jun 30, 2018

The largest component of GDP in the US is typically:

a. government purchases.
b. social securtity.
c. consumption.
d. investment.
e. net exports.

Question 2

Briefly explain why changes in government spending or taxes do not have independent effects on aggregate demand. What does shift the aggregate demand curve in the classical model?

What will be an ideal response?

debra928 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

C

Answer to Question 2

Government spending and taxes do not have independent effects on aggregate demand because of the adjustment of the interest rate and resulting crowding-out effects on the components of private sector demand. The only things that shift aggregate demand are changes in the money supply or the velocity of money.