Exhibit 15-4 Aggregate Demand and Supply Model

question 175

Multiple Choice

Exhibit 15-4 Aggregate demand and supply model

-Suppose the economy in Exhibit 15-4 is in equilibrium at point E₁ and the marginal propensity to consume (MPC) is 0.75.Following Keynesian economics,the federal government can move the economy to point E₂ and reduce inflation by:

• A) decreasing government spending by $750 billion.
• B) decreasing government spending by $100 billion.
• C) increasing government spending by $25 billion.
• D) decreasing government spending by $25 billion.

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