Suppose That the Economy Is Operating in Full-Employment Equilibrium Along

question 196

Multiple Choice

Suppose that the economy is operating in full-employment equilibrium along the vertical section of the aggregate supply curve. If the aggregate demand curve is reduced by $100 billion in order for the price level to decline by 5 percent, and if the marginal propensity to consume (MPC) is 0.75, then what change in taxes would generate the desired price reduction?

• A) $300 billion.
• B) − $75 billion.
• C) − $33.3 billion.
• D) − $25 billion.

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Definitions:

Social Withdrawal

The behavior of avoiding social interactions and activities, often associated with anxiety, depression, or other psychological conditions.

Anorexia

An eating disorder characterized by an obsessive fear of gaining weight, leading to a refusal to eat enough food and, consequently, severe weight loss.

Irritability

A state of increased annoyance or touchiness, often as a symptom of stress or certain medical conditions.

Empirical Support

Evidence that is based on observation or experiment, supporting the effectiveness or validity of a concept or treatment.