Suppose the Price Level Is Fixed,the MPC Is

question 44

Multiple Choice

Suppose the price level is fixed,the MPC is .5,and the GDP gap is a negative $100 billion.To achieve full-employment output (exactly) ,government should:

• A) increase government expenditures by $100 billion.
• B) increase government expenditures by $50 billion.
• C) reduce taxes by $50 billion.
• D) reduce taxes by $200 billion.

---

Definitions:

Velocity of Circulation

The rate at which money is exchanged in an economy, often used to represent the activity level in the financial system.

Expected Profit Rate

The anticipated return on an investment, taking into account both the probability of gains and the risk of losses.

Interest Rate

The amount charged by lenders to borrowers for the use of money, expressed as a percentage of the principal.

Velocity of Circulation

The rate at which money exchanges hands in the economy, influencing overall economic activity and inflation.