During a Recession, Analysts at the CBO Project That the Economy

question 43

Multiple Choice

During a recession, analysts at the CBO project that the economy is operating $1.5 trillion below potential output. Assuming the MPC is 0.8, by how much would the government have to increase spending to restore potential output?

• A) $500 billion
• B) $300 billion
• C) $1.2 trillion
• D) $800 billion

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Definitions:

Benefit Concert

A music concert organized with the aim of raising funds for a charitable cause or to support a specific community in need.

American Prison System

A network of correctional facilities and institutions within the United States designed for the incarceration and rehabilitation of criminals.

Illicit Drugs

Substances whose production, sale, or use is prohibited by law due to their potential for abuse and harm.

Nonviolent Crimes

Offenses that do not involve force or injury to other people; examples include theft, fraud, illegal drug use, and white-collar crimes.