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.

---

Definitions:

Kinesthetic Senses

The ability to sense body position, movement, and dynamics of the muscles and joints, contributing to our sense of proprioception.

Umami

The taste sensation produced by certain amino acids, often described as savory or meaty, recognized as one of the five basic tastes.

Two-Point Threshold

The minimum distance at which two points of contact can be felt as separate sensations, used to measure perceptual acuity or sensitivity.

Semicircular Canals

Part of the inner ear involved in maintaining balance and sensing rotation of the head.