Exhibit 15-5  Aggregate Demand and Supply Model Suppose the Economy

question 14

Multiple Choice

Exhibit 15-5  Aggregate demand and supply model Suppose the economy in Exhibit 15-5 is in equilibrium at point E₁ and the marginal propensity to consume (MPC) is 0.75. Following Keynesian economics, the federal government can move the economy to point E₂ and reduce inflation by:

• A) increasing government spending by $50 billion.
• B) decreasing government spending by $6 billion.
• C) decreasing government spending by $100 billion.
• D) decreasing government spending by $50 billion.