Assume the economy is in recession and real GDP is below full employment. The marginal propensity to consume (MPC) is 0.75, and the government follows Keynesian economics by using expansionary fiscal policy to increase aggregate demand (total spending). If an increase of $1,000 billion aggregate demand can restore full employment, the government should:
a. increase spending by $250 billion.
b. decrease spending by $750 billion.
c. increase spending by $1,000 billion.
d. increase spending by $750 billion.
a
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With a tax of $4,000 on $24,000 taxable income, the average tax rate is
A. 16.67%. B. 23.45%. C. 20%. D. 25%.
Why is the demand for a luxury generally more elastic (or less inelastic) than the demand for a necessity?
What will be an ideal response?
Describe how Keynesian economics is a cyclical phenomenon. Is it leading, lagging, or coincident? Procyclical or countercyclical?
What will be an ideal response?
In a system of flexible exchange rates, a reduction in the money supply will cause
a. a rise in the value of the dollar relative to foreign currencies. b. a fall in the value of the dollar relative to foreign currencies. c. no change in the value of the dollar relative to foreign currencies. d. a change in the value of the dollar relative to foreign currencies but the direction of the change is uncertain.