Exhibit 11-3 Aggregate Demand and Supply Model Suppose the Economy

question 59

Multiple Choice

Exhibit 11-3 Aggregate demand and supply model Suppose the economy in Exhibit 11-3 is in equilibrium at point E₁, and the marginal propensity to consume (MPC) is 0.75. Following Keynesian economics, to restore full employment, the government should cut taxes by:

• A)$0.20 trillion.
• B)$1 trillion.
• C)$0.5 trillion.
• D)$0.25 trillion.

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Definitions:

Isoquant

A curve in economic theory that represents all the combinations of inputs which produce the same level of output.

Isoquant

A curve that represents all the combinations of inputs that result in the production of a certain level of output.

Slope

In mathematics, it refers to the steepness or incline of a line, indicating the rate at which y-values change with respect to x-values.

Budget Constraint

The limits imposed on household choices by income, wealth, and product prices.