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Exhibit 11-2 Aggregate Demand and Supply Model Suppose the Economy

Question 4

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Exhibit 11-2 Aggregate demand and supply model Exhibit 11-2 Aggregate demand and supply model Suppose the economy in Exhibit 11-2 is in equilibrium at point E<sub>1</sub> and the marginal propensity to consume (MPC) is 0.75. Following Keynesian economics, the federal government can move the economy to full employment at point E<sub>2</sub> by: A) decreasing government spending by $750 billion. B) decreasing government spending by $100 billion. C) increasing government spending by $25 billion. D) decreasing government spending by $25 billion. E) None of these. Suppose the economy in Exhibit 11-2 is in equilibrium at point E1 and the marginal propensity to consume (MPC) is 0.75. Following Keynesian economics, the federal government can move the economy to full employment at point E2 by:


A) decreasing government spending by $750 billion.
B) decreasing government spending by $100 billion.
C) increasing government spending by $25 billion.
D) decreasing government spending by $25 billion.
E) None of these.

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