Suppose Inflation Is a Threat Because the Current Aggregate Demand

question 61

Multiple Choice

Suppose inflation is a threat because the current aggregate demand curve will increase by $600 billion at any price level. If the marginal propensity to consume is 0.75, federal policymakers can follow Keynesian economics and restrain inflation by:

• A) decreasing tax revenues by $600 billion.
• B) decreasing government spending by $200 billion.
• C) increasing tax revenues by $200 billion.
• D) increasing government purchases by $150 billion.

Understand the impact of purchases and depreciation on firm's cash flow and net income.

Identify the marginal tax rate for individuals and firms based on income levels.

Understand and identify the most and least liquid assets.

Analyze the effects of transactions on shareholders' equity.

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Definitions:

Extinction

In behavioral psychology, the gradual weakening and eventual disappearance of a conditioned response when the conditioned stimulus is no longer paired with the unconditioned stimulus.

Conditioned Stimulus

An initially impartial stimulus which, upon association with an unconditioned stimulus, gradually brings about a conditioned response.

Unconditioned Stimulus

A stimulus that naturally triggers a reflexive response without the need for prior learning.

Stimulus Generalization

A learning process in which the conditioned response is evoked by stimuli that are similar to the conditioned stimulus.