If No Fiscal Policy Changes Are Implemented to Fight Inflation

question 59

Multiple Choice

If no fiscal policy changes are implemented to fight inflation, suppose the aggregate demand curve will exceed the current aggregate demand curve by $900 billion at any level of prices. Assuming the marginal propensity to consume is 0.90, this increase in aggregate demand could be prevented by:

• A) increasing government spending by $500 billion.
• B) increasing government spending by $140 billion.
• C) decreasing taxes by $40 billion.
• D) increasing taxes by $100 billion.

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Definitions:

South Carolina

A state in the southeastern region of the United States, known for its history, cultural heritage, and role in the American Civil War.

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The 19th-century movement of settlers into the American West, encouraged by Manifest Destiny, land opportunity, and exploration.

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