Exhibit 20-4 Macro AD/AS Model

question 12

Multiple Choice

Exhibit 20-4 Macro AD/AS Model

As shown in Exhibit 20A-4, assume the marginal propensity to consume equals 0.80.  Using discretionary fiscal policy, federal government spending should be _________  in order to restore the economy from E ₁ to full employment.

• A) increased by $1.6 trillion
• B) decreased by $1.6 trillion
• C) increased by $.20 trillion
• D) decreased by $.20 trillion

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Definitions:

Reaction Formation

is a defense mechanism where an individual unconsciously replaces unacceptable feelings or impulses with their opposites, often seen in behaviors that contradict true feelings.

Convince Others

The process of persuading someone to agree with or believe in a particular point of view or idea.

Made a Good Deal

Achieved a favorable or advantageous agreement or outcome, often in a negotiation or transaction.

Laboratory Experiments

Controlled tests conducted in a specifically designed environment where researchers manipulate variables to observe effects on subjects under study.