Exhibit 15-2 Aggregate demand and supply model
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Suppose the economy in Exhibit 15-2 is in equilibrium at point E1 and the marginal propensity to consume (MPC) is 0.75. Following Keynesian economics, the federal government can move the economy to full employment at point E2 by:
A. decreasing government tax revenue by approximately $33 billion.
B. decreasing government tax revenue by $750 billion.
C. increasing government tax revenue by $100 billion.
D. increasing government tax revenue by approximately $33 billion.
Answer: A
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