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Use the Aggregate Expenditures Model and Assume an Economy Is

Question 112

Multiple Choice

Use the aggregate expenditures model and assume an economy is in equilibrium at $6 trillion which is $500 billion below full-employment GDP. If the marginal propensity to consume (MPC) is 0.75, full-employment GDP can be reached if government spending:


A) increases by $75 billion.
B) increases by $125 billion.
C) increases by $500 billion.
D) is held constant.

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