Initially,the Economy Is in Long-Run Equilibrium

question 68

Multiple Choice

Initially,the economy is in long-run equilibrium.The aggregate demand curve then shifts $80 billion to the left.The government wants to change spending to offset this decrease in demand.The MPC is 0.75.Suppose the effect on aggregate demand of a tax change is 3/4 as strong as the effect of a change in government expenditure.There is no crowding out and no accelerator effect.What should the government do if it wants to offset the decrease in real GDP?

• A)Raise both taxes and expenditures by $80 billion dollars.
• B)Raise both taxes and expenditures by $10 billion dollars.
• C)Reduce both taxes and expenditures by $80 billion dollars.
• D)Reduce both taxes and expenditures by $10 billion dollars.

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Definitions:

Phylum

A principal taxonomic category that ranks above class and below kingdom, grouping together organisms that share a basic structural and developmental pattern.

Phylum

A classification in the biological taxonomy that is below kingdom and above class, used to group organisms with a common plan of structure or development.

Phylum

A major classification of living organisms, ranking above class and below kingdom, that groups together organisms with a common basic structure.

Phylum

A rank in the biological taxonomy that is below kingdom and above class, used to group organisms that share basic structural or developmental characteristics.