To Eliminate an AD Shortfall of $120 Billion When the Economy

question 144

Multiple Choice

To eliminate an AD shortfall of $120 billion when the economy has an MPC of 0.75,the government should decrease taxes by

• A)$400 billion.
• B)$120 billion.
• C)$30 billion.
• D)$40 billion.

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Definitions:

U.S. Government Securities

Fixed-income investments backed by the full faith and credit of the United States government, including Treasury bills, notes, and bonds.

Money Supply

The total amount of monetary assets available in an economy at any specific time.

Interest Rate

The expense, quantified as a percentage of the principal, charged by a lender to a borrower for the use of resources.

Demand for Money

The desire to hold cash or easily liquidable assets, influenced by interest rates, income levels, and economic activity.