The Economy Is in Long-Run Equilibrium

question 84

Multiple Choice

The economy is in long-run equilibrium.The aggregate demand curve shifts $80 billion to the left.The government wants to change spending to offset this decrease in demand.The MPC is .75.Suppose the effect on aggregate demand of a tax change is 3/4 as strong as the effect of a change in government expenditure.What should the government do if it wants to offset the decrease in real GDP?

• A)raise both taxes and expenditures by $80 billion dollars.
• B)raise both taxes and expenditures by $10 billion dollars.
• C)reduce both taxes and expenditures by $80 billion dollars.
• D)reduce both taxes and expenditures by $10 billion dollars.

---

Definitions:

Department Viability

An assessment of a department’s ability to continue operating effectively, often considering its financial performance and strategic fit within an organization.

Income Statement

A financial statement that shows a company's revenues, expenses, and profits or losses over a specific period.

Departmental Contribution Margin

Departmental Contribution Margin refers to the contribution margin as calculated for specific departments within a company, showing the profit contribution of each department.

Separate Accounting Records

The practice of maintaining distinct records for different parts of a business's operations or for individual entities, ensuring clarity and precision in financial tracking.