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

question 80

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 cut taxes by:

• A) $0.20 trillion.
• B) $250 billion.
• C) $0.50 trillion.
• D) $1 trillion.

---

Definitions:

Quantity Supplied

The capacity of goods or services that producers are inclined and qualified to vend at an identified price for a designated span of time.

Price Rises

An increase in the cost of goods or services over time, often referred to as inflation.

Increase in Supply

A situation where the quantity of a product that producers are willing and able to sell at various prices rises, often due to factors like technological advancements or decreased production costs.

Quantity Supplied

The total number of units of a good or service that sellers are willing and able to sell at a particular price over a specified period.