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Suppose the Economy Is Operating at an Output of $4,000

Question 4

Multiple Choice

Suppose the economy is operating at an output of $4,000 billion. Assume furthermore that potential output is $5,000 billion and the marginal propensity to consume is 0.75. _____ would close this recessionary gap.


A) A $25 billion increase in government spending
B) A $25 billion increase in taxes
C) A $250 billion increase in government spending
D) A $1,000 billion increase in government spending

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