Exhibit 15-2  Aggregate Demand and Supply Model Suppose the Economy

question 175

Multiple Choice

Exhibit 15-2  Aggregate demand and supply model Suppose the economy in Exhibit 15-2 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 full employment at point E₂ by:

• A) decreasing government spending by $750 billion.
• B) decreasing government spending by $100 billion.
• C) increasing government spending by $25 billion.
• D) decreasing government spending by $25 billion.
• E) None of the above.