Exhibit 15-5 Aggregate Demand and Supply Model

question 150

Multiple Choice

Exhibit 15-5 Aggregate demand and supply model

-Suppose the economy in Exhibit 15-5 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) increasing government spending by $50 billion.
• B) decreasing government spending by $6 billion.
• C) decreasing government spending by $100 billion.
• D) decreasing government spending by $50 billion.

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