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

question 138

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 tax revenue by $100 billion.
• B) decreasing government tax revenue by $750 billion.
• C) increasing government tax revenue by $100 billion.
• D) increasing government tax revenue by approximately $33 billion.
• E) decreasing government tax revenue by approximately $33 billion.

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Definitions:

Poverty Line

A defined income threshold below which individuals or families are considered to be living in poverty, contextual to each country's standard of living and cost of living.

In-Kind Transfers

Transfers of goods or services from one party to another as a form of payment or aid, rather than transferring cash.

Economic Pie

A metaphorical representation of a nation's total economic output, suggesting how much wealth is available for distribution among its population.

Same Income

A situation where two or more individuals or entities earn an identical amount of money over a given period.