Exhibit 17-2 Aggregate Demand and Supply Model

question 20

Multiple Choice

Exhibit 17-2 Aggregate demand and supply model

-Suppose the economy in Exhibit 17-2 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 point E₂ and reduce inflation by:

• A)increasing government spending by $50 billion.
• B)decreasing government spending by $6 billion.
• C)decreasing government spending by $50 billion.
• D)decreasing government spending by $100 billion.

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Definitions:

RRSP

Registered Retirement Savings Plan, a Canadian account for holding savings and investment assets, with tax benefits for retirement savings.

Annuity

A fiscal vehicle offering a steady payout to individuals, commonly employed in retirement strategy.

Payments

The act of transferring money from one party to another, often in exchange for goods, services, or to fulfill a legal obligation.

Compounded Quarterly

Interest added to the principal sum every quarter, or four times a year, resulting in the interest of the next period being calculated on the new total.