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Exhibit 11-5 Aggregate Demand and Supply Model Suppose the Economy

Question 78

Multiple Choice

Exhibit 11-5 Aggregate demand and supply model Exhibit 11-5 Aggregate demand and supply model Suppose the economy in Exhibit 11-5 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 point E<sub>2</sub> and reduce inflation by: A) increasing government spending by $50 billion. B) decreasing government spending by $6 billion. C) decreasing government spending by $100 billion. D) decreasing government spending by $50 billion. Suppose the economy in Exhibit 11-5 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 point E2 and reduce inflation by:


A) increasing government spending by $50 billion.
B) decreasing government spending by $6 billion.
C) decreasing government spending by $100 billion.
D) decreasing government spending by $50 billion.

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