Exhibit 11-7 Aggregate Demand and Supply Model Suppose the Economy

question 152

Multiple Choice

Exhibit 11-7 Aggregate demand and supply model Suppose the economy in Exhibit 11-7 is in equilibrium at point E₁ and the marginal propensity to consume (MPC) is 0.75. Following Keynesian economics, to lower the price level from 170 to 150 the government should raise taxes by:

• A)$20 billion.
• B)$100 billion.
• C)$133 billion.
• D)$400 billion.

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Definitions:

Skills

The abilities and expertise acquired through training or experience that enable an individual to perform tasks effectively.

Natural Rate

The level of unemployment or interest that exists when an economy is balanced, not affected by short-term fluctuations or cyclical, structural factors.

Price Level

The combined average cost of all goods and services manufactured within the economy.

Deflation

A decrease in the general price level of goods and services, often indicating an economy in contraction.