Use the Aggregate Expenditures Model and Assume an Economy Is

question 57

Multiple Choice

Use the aggregate expenditures model and assume an economy is in equilibrium at $6 trillion which is $500 billion above full-employment GDP. If the marginal propensity to consume (MPC) is 0.75, full-employment GDP can be reached if government spending:

• A)decreases by $75 billion.
• B)decreases by $125 billion.
• C)decreases by $500 billion.
• D)is held constant.

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