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:

Pericardial Sac

A double-layered membrane enclosing the heart, providing lubrication and protection against friction.

Pelvic Cavity

A body cavity that is bounded by the bones of the pelvis, containing reproductive organs, the urinary bladder, and the rectum.

Body Cavities

Defined spaces within the body that house organs and other structures, such as the thoracic, abdominal, and pelvic cavities.

Mesentery

A double layer of peritoneum that attaches the intestines to the wall of the abdomen, providing support and containing blood vessels, nerves, and lymphatics.