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Assume That the Marginal Propensity to Consume Is 0

Question 158

Multiple Choice

Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. If GDP is $850 billion:

A) there is an inflationary gap.
B) there is a recessionary gap.
C) the economy is in long-run equilibrium.
D) taxes should be decreased.

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