Multiple Choice
Suppose that the economy is operating in full-employment equilibrium along the vertical section of the aggregate supply curve. If the aggregate demand curve is reduced by $100 billion in order for the price level to decline by 5 percent, and if the marginal propensity to consume (MPC) is 0.75, then what change in taxes would generate the desired price reduction?
A) $300 billion.
B) − $75 billion.
C) − $33.3 billion.
D) − $25 billion.
Correct Answer:
Verified
Correct Answer:
Verified
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