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:

Net Amount

The remaining value after all deductions are made, such as for taxes or discounts.

Receivables

Funds that customers or clients owe to a business for products or services delivered on credit.

Estimated Bad Debts

The portion of accounts receivable that a company does not expect to collect.

Carrying Amount

The recorded cost of an asset in a company's financial statements, less any accumulated depreciation or amortization.