Suppose the Economy Is Operating at an Output Level of $5,400

question 110

Multiple Choice

Suppose the economy is operating at an output level of $5,400 billion. Assume furthermore that potential output is $5,000 billion and the marginal propensity to consume is 0.75. _____ would close this inflationary gap.

• A)A $400 billion tax hike
• B)Raising government purchases of goods and services by $400 billion
• C)Decreasing government purchases of goods and services by $100 billion
• D)Increasing government purchases of goods and services by $100 billion

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