Exhibit 11-4 Aggregate Demand and Supply Model Suppose the Economy

question 145

Multiple Choice

Exhibit 11-4 Aggregate demand and supply model Suppose the economy in Exhibit 11-4 is in equilibrium at point E₁ and the marginal propensity to consume (MPC) is 0.75. Following Keynesian economics, the federal government can move the economy to point E₂ and reduce inflation by:

• A)decreasing government tax revenue by $100 billion.
• B)decreasing government tax revenue by $750 billion.
• C)increasing government tax revenue by $100 billion.
• D)increasing government tax revenue by approximately $33 billion.
• E)decreasing government tax revenue by approximately $33 billion.

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