Exhibit 15-5 Aggregate Demand and Supply Model

question 108

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 tax revenue by $6 billion.
• B) decreasing government tax revenue by $6.1 billion.
• C) decreasing government tax revenue by $200 billion.
• D) increasing government tax revenue by approximately $66 billion.
• E) decreasing government tax revenue by approximately $66 billion.