Exhibit 11-2 Aggregate Demand and Supply Model

Multiple Choice

Exhibit 11-2 Aggregate demand and supply model

Suppose the economy in Exhibit 11-2 is in equilibrium at point E₁ and the marginal propensity to consume (MPC) is 0.75. Following Keynesian economics, the federal government can move the economy to full employment at point E₂ by:

A) decreasing government tax revenue by approximately $33 billion.
B) decreasing government tax revenue by $750 billion.
C) increasing government tax revenue by $100 billion.
D) increasing government tax revenue by approximately $33 billion.