In an Economy, the Government Wants to Decrease Aggregate Demand

question 129

Multiple Choice

In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is 0.25, then it could

• A) increase taxes by $16 billion.
• B) increase taxes by $24 billion.
• C) decrease government spending by $10 billion.
• D) decrease government spending by $16 billion.

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Definitions:

Transpiration

A mechanism where water is transported from the roots up to minuscule holes beneath the leaves in plants, converting into vapor before being discharged into the atmosphere.

Earth's Atmosphere

The layer of gases surrounding Earth, retained by Earth's gravity, which protects life by absorbing ultraviolet solar radiation, warming the surface through heat retention, and reducing temperature extremes between day and night.

Nitrogen

Nitrogen is a chemical element with the symbol N and atomic number 7; it is a colorless, odorless gas that is a fundamental part of amino acids and nucleic acids, essential for life.

Carbon Dioxide

A gas without any color or smell, emanating from the burning of compounds containing carbon and the respiratory process, absorbed by vegetation in the process of converting light into energy.