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

Question 186

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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 tax revenue by $6 billion. B) decreasing government tax revenue by $6.1 billion. C) decreasing government tax revenue by $200 billion. D) increasing government tax revenue by approximately $66 billion. E) decreasing government tax revenue by approximately $66 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 tax revenue by $6 billion.
B) decreasing government tax revenue by $6.1 billion.
C) decreasing government tax revenue by $200 billion.
D) increasing government tax revenue by approximately $66 billion.
E) decreasing government tax revenue by approximately $66 billion.

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