Multiple Choice
Use the aggregate expenditures model and assume an economy is in equilibrium at $6 trillion which is $500 billion above full-employment GDP. If the marginal propensity to consume (MPC) is 0.75, full-employment GDP can be reached if government spending:
A) decreases by $75 billion.
B) decreases by $125 billion.
C) decreases by $500 billion.
D) is held constant.
Correct Answer:
Verified
Correct Answer:
Verified
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