Assume that the full-employment level of output is $1,000 and the price level associated with full-employment output is 100. Also assume that the economy's current level of output is $1,100 and, at the price level of 100, current aggregate demand is $1,200. If the government wants to move the economy back to the full-employment level of output and the MPC is 0.75, then it should

A. reduce government purchases by $100.
B. reduce government purchases by $200.
C. reduce government purchases by $50.
D. reduce government purchases by $25.


Answer: C

Economics

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