If No Fiscal Policy Changes Are Made, Suppose the Current

question 1

Multiple Choice

If no fiscal policy changes are made, suppose the current aggregate demand curve will increase horizontally (shift rightward) by $1,000 billion and cause inflation. If the marginal propensity to consume is 0.90, federal policymakers could follow Keynesian economics and restrain inflation by decreasing:

• A) government spending by $100 billion.
• B) taxes by $100 billion.
• C) taxes by $1,000 billion.
• D) government spending by $1,000 billion.

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Definitions:

Price Adjustment

The process by which prices of goods and services are altered to respond to changes in the market conditions.

Apples

A widely cultivated fruit that grows on apple trees, and is consumed worldwide for its sweet flavor.

Oranges

A citrus fruit known for its round shape and orange color, which is rich in vitamin C.

Utilities Possibilities Frontier

Represents the maximum utility levels that two individuals or more can achieve within a given set of resources, emphasizing trade-offs and efficiency.