Essentials of Economics 7th Edition by Gregory Mankiw

Exercise 10

With the economy in a recession because of inadequate aggregate demand, the government increases its purchases by $1,200. Suppose the central bank adjusts the money supply to hold the interest rate constant, investment spending is fixed, and the marginal propensity to consume is 2/3. How large is the increase in aggregate demand?
A) $400
B) $800
C) $1,800
D) $3,600