If No Fiscal Policy Changes Are Implemented to Fight Inflation

question 59

Multiple Choice

If no fiscal policy changes are implemented to fight inflation, suppose the aggregate demand curve will exceed the current aggregate demand curve by $900 billion at any level of prices. Assuming the marginal propensity to consume is 0.90, this increase in aggregate demand could be prevented by:

• A) increasing government spending by $500 billion.
• B) increasing government spending by $140 billion.
• C) decreasing taxes by $40 billion.
• D) increasing taxes by $100 billion.

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Definitions:

Chemically Unreactive

Describes substances that do not easily undergo chemical reactions or change their chemical structure in the presence of other substances.

Reflectivity

The measure of the proportion of light or radiation that is reflected by a surface, often impacting climate and temperature.

Earth's Climate

The global patterns of weather and atmospheric conditions affecting the entire Earth, influenced by solar radiation, oceans, landforms, and human activity.

Temperature

A physical quantity expressing hot and cold, measured with a thermometer and quantitatively determined by the average kinetic energy of the particles in a substance.