Multiple Choice
Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. If real GDP is $850 billion, to bring the economy to potential output the government should:
A) decrease spending by $50 billion.
B) increase spending by $50 billion.
C) decrease transfers by $50 billion.
D) decrease spending by $10 billion.
Correct Answer:
Verified
Correct Answer:
Verified
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