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:

Stress Hormones

Chemicals released in the body in response to stress, including cortisol and adrenaline, which prepare the body to face a challenge.

Self-Directed Practices

Activities or learning methods where individuals take the initiative, with or without the help of others, to diagnose their learning needs, formulate learning goals, identify resources for learning, choose and implement learning strategies, and evaluate learning outcomes.

Sleep Disorder

A medical disorder of the sleep patterns of a person or animal, which can significantly impact health and quality of life.

Allostatic Load

The cumulative burden of chronic stress and life events on the body's systems, which can affect overall health.