If No Fiscal Policy Changes Are Made, Suppose the Current

question 25

Multiple Choice

If no fiscal policy changes are made, suppose the current aggregate demand curve will increase horizontally by $1,000 billion and cause inflation. If the marginal propensity to consume is 0.75, federal policymakers could follow Keynesian economics and restrain inflation by decreasing:

• A) government spending by $250 billion.
• B) taxes by $100 billion.
• C) taxes by $1,000 billion.
• D) government spending by $1,000 billion.

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Definitions:

Social Policy

Social policy encompasses guidelines, principles, legislation, and activities that affect the living conditions conducive to human welfare, such as health, education, and social security.

Contract Actions

Legal proceedings that involve disputes over the terms, performance, or enforcement of a contract.

Substitute Goods

Products or services that can be used in place of each other, based on similar features or fulfilling the same needs.

Sales Agreement

A contract between a buyer and seller outlining the terms and conditions of a sale of goods or services.