If No Fiscal Policy Changes Are Made, Suppose the Current

question 1

Multiple Choice

If no fiscal policy changes are made, suppose the current aggregate demand curve will increase horizontally (shift rightward) by $1,000 billion and cause inflation. If the marginal propensity to consume is 0.90, federal policymakers could follow Keynesian economics and restrain inflation by decreasing:

• A) government spending by $100 billion.
• B) taxes by $100 billion.
• C) taxes by $1,000 billion.
• D) government spending by $1,000 billion.

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