If the government wishes to increase the level of real GDP, it might reduce:

a. taxes
b. transfer payments
c. the size of the budget deficit
d. its purchases of goods and services

To determine the correct answer, let's break down each option and analyze its effect on the level of real GDP:

a. Reduce taxes: When the government reduces taxes, it puts more money in the hands of individuals and businesses. This can incentivize higher spending and investment, leading to increased economic activity and potentially increasing the level of real GDP. So, reducing taxes could potentially help increase the level of real GDP.

b. Reduce transfer payments: Transfer payments are payments made by the government to individuals or households, such as welfare or unemployment benefits. When the government reduces transfer payments, it reduces the income of individuals or households, which may result in lower spending and reduced economic activity. Therefore, reducing transfer payments is less likely to increase the level of real GDP.

c. Reduce the size of the budget deficit: The budget deficit occurs when government expenses exceed its revenue. By reducing the size of the budget deficit, the government is either reducing expenses or increasing revenue. This reduction in government spending could potentially have a contractionary effect on the economy, leading to a decrease in the level of real GDP.

d. Decrease purchases of goods and services: When the government purchases goods and services, it directly contributes to the GDP. If the government reduces its purchases, it reduces the overall demand for goods and services, which can have a negative impact on economic activity and lower the level of real GDP.

Based on this analysis, the correct answer would be a. Reduce taxes, as it is most likely to increase the level of real GDP.