Assume the Economy Is in Recession and Real GDP Is

question 64

Multiple Choice

Assume the economy is in recession and real GDP is below full employment. The marginal propensity to consume (MPC) is 0.90, and the government follows Keynesian economics by using expansionary fiscal policy to increase aggregate demand (total spending) . If an increase of $1,000 billion aggregate demand can restore full employment, the government should:

• A) increase spending by $100 billion.
• B) decrease spending by $790 billion.
• C) increase spending by $1,000 billion.
• D) increase spending by $250 billion.

---

Definitions:

Psychological Resilience

The ability of an individual to mentally or emotionally cope with a crisis or to return to pre-crisis status quickly, demonstrating adaptability amidst adversity.

Risk Exposure

refers to the potential to encounter harm or loss, which can vary based on socioeconomic status, location, health, and other factors.

Traumatic Experiences

Events or situations that are emotionally disturbing or distressing, which can lead to long-term psychological effects.

Negative Trajectories

Paths or patterns of behavior that lead to detrimental outcomes, often influenced by adverse environmental or personal factors.