Exhibit 16A-4 Macro AD\AS Models as Shown in Exhibit

question 34

Multiple Choice

Exhibit 16A-4 Macro AD\AS Models As shown in Exhibit 16A-4, assume the marginal propensity to consume MPC equals 0.75. Using discretionary fiscal policy, federal government spending should be ____ in order to restore the economy from E₁ to full employment.

• A)increased by $1 trillion
• B)increased by $2 trillion
• C)decreased by $2 trillion
• D)increased by $.50 trillion
• E)increased by $.80 trillion

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Definitions:

GDP Price Index

The GDP Price Index measures the overall change in the prices of all goods and services included in the Gross Domestic Product, showcasing inflation or deflation.

Real GDP

The total value of all goods and services produced in a country adjusted for inflation, reflecting the actual economic growth.

Inventory Decreases

A reduction in the quantity of goods that a company has in stock, typically indicating increased sales or reduced production.

Gross Domestic Product

The total market value of all goods and services produced within a country in a specific time period.