An increase in government purchases will increase aggregate demand because government expenditures are a component of aggregate demand.
From the above choices given only choice A gives the best answer.
According to Keynesian theory the aggregate demand is dependent on four components which are government spending, consumption, investment, and net exports.
Government spending increases as government purchases increase.
The increase in government spending increases results in decrease in taxes which in turn affects the aggregate demand.
The increase in consumption increases results only when taxes are decreased which in turn affects the aggregate demand.
From the above choices given only choice A gives the best answer.
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