Assume the Economy Is in Recession and Real GDP Is

question 64

Multiple Choice

Assume the economy is in recession and real GDP is below full employment. The marginal propensity to consume (MPC) is 0.90, and the government follows Keynesian economics by using expansionary fiscal policy to increase aggregate demand (total spending) . If an increase of $1,000 billion aggregate demand can restore full employment, the government should:

• A) increase spending by $100 billion.
• B) decrease spending by $790 billion.
• C) increase spending by $1,000 billion.
• D) increase spending by $250 billion.

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Definitions:

Patent

A legal authorization granted to an inventor to exclusively manufacture, use, or sell an invention for a certain number of years.

Ordinary Annuity

A series of equal payments made at regular intervals, with interest compounded at the end of each period.

Nominal Interest

The stated or advertised rate of interest on a loan or investment, not accounting for inflation or compounding effects.

Effective Rate

The actual interest rate on an investment or loan, taking into account the effect of compounding over a given period.