Exhibit 16A-3  Macro AD/AS Model

As shown in Exhibit 16A-3, assume the marginal propensity to consume MPC equals 0.80. Using discretionary fiscal policy, federal government spending should be _________ in order to restore the economy from E1to full employment.   

A. increased by $2 trillion
B. decreased by $2 trillion
C. decreased by $.40 trillion
D. increased by $.80 trillion


Answer: D

Economics

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