Initially,the Economy Is in Long-Run Equilibrium

question 6

Multiple Choice

Initially,the economy is in long-run equilibrium.The aggregate demand curve then shifts $50 billion to the left.The government wants to change its spending to offset this decrease in demand.The MPC is 0.80.Suppose the effect on aggregate demand from a change in taxes is 4/5 the size of the change from government expenditures.There is no crowding out and no accelerator effect.What should the government do if it wants to offset the decrease in aggregate demand?

• A)Raise both taxes and expenditures by $5.56 billion dollars.
• B)Raise taxes by $40 billion dollars and increase expenditures by $50 billion dollars.
• C)Reduce taxes by $10 billion dollars and increase expenditures by $10 billion dollars.
• D)Reduce taxes by $5.56 billion dollars and increase expenditures by $5.56 billion dollars.

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Definitions:

Multiple Aptitude Test

A type of assessment designed to measure a range of abilities and skills in order to evaluate academic potential or career suitability.

Special Aptitude Tests

Exams designed to measure specific skills or abilities in areas such as music, art, or mechanics, often used for educational or career guidance.

Recreational

Pertaining to activities done for enjoyment, leisure, or relaxation outside of one's professional or work-related duties.

ASVAB

Stands for Armed Services Vocational Aptitude Battery, a test used by U.S. military to determine qualification for enlistment and suggest potential career paths within the military.