Exhibit 15-3  Aggregate Demand and Supply Model Suppose the Economy

question 74

Multiple Choice

Exhibit 15-3  Aggregate demand and supply model Suppose the economy in Exhibit 15-3 is in equilibrium at point E₁ and the marginal propensity to consume (MPC) is 0.80. Following Keynesian economics, to restore full employment, the government should increase its spending by:

• A) $200 billion.
• B) $250 billion.
• C) $500 billion.
• D) $1 trillion.

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Definitions:

Demand Schedule

A chart or table that shows the quantity of a good or service that consumers are willing and able to purchase at various prices.

Elastic Segment

refers to a portion of the market where demand is highly sensitive to changes in price.

Inelastic Segment

A portion of the demand curve where consumers' demand for a product does not significantly change with a change in price.

Demand Curve

A graphical representation showing the relationship between the price of a good and the quantity of the good that consumers are willing and able to purchase at various prices.