Exhibit 11-7 Aggregate Demand and Supply Model Beginning at Equilibrium

question 115

Multiple Choice

Exhibit 11-7 Aggregate demand and supply model Beginning at equilibrium E₁ in Exhibit 11-7, suppose the marginal propensity to consume (MPC) is 0.75, and the government wishes to lower the price level form 170 to 150 while maintaining a balanced budget. The government should reduce both spending and taxes by:

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

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Definitions:

Authority

Authority refers to the power or right given to an individual or organization to make decisions, direct others, and enforce obedience.

Profit Margin

A financial metric indicating the percentage of income left over from revenues after accounting for costs and expenses.

Activity Base

A measure used to allocate costs to activities, such as units produced, hours worked, or miles driven.

Service Departments

Units within an organization that support other departments but do not directly contribute to profit, such as human resources and maintenance.