The Economy Is in Long-Run Equilibrium

question 60

Multiple Choice

The economy is in long-run equilibrium.The aggregate demand curve shifts $40 billion to the left.The government wants to change its spending to offset this decrease in demand.The MPC is .60.Suppose the effect on aggregate demand from a change in taxes is 3/5 the size of the change from government expenditures.What should the government do if it wants to offset the decrease in real GDP?

• A)raise both taxes and expenditures by $40 billion dollars.
• B)raise both taxes and expenditures by $40 billion dollars
• C)reduce both taxes and expenditures by $10 billion dollars
• D)reduce both taxes and expenditures by $10 billion dollars.

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Definitions:

Picket Line

A boundary established by workers on strike, especially at the entrance to the place of work, meant to demonstrate grievance against the employer or to deter others from entering the site.

Negotiations

The process by which parties discuss and arrive at a mutual agreement on matters of common interest.

Union Leader

An individual who represents and defends the interests of a group of workers, helping to negotiate terms of employment such as wages and working conditions with employers.

Strategic View

An approach to decision-making that considers the long-term direction and implications of actions taken by an organization.