Suppose the Economy Is Operating at an Output Level of $5,400

Multiple Choice

Suppose the economy is operating at an output level of $5,400 billion. Assume furthermore that potential output is $5,000 billion and the marginal propensity to consume is 0.75. _____ would close this inflationary gap.

A) A $400 billion tax hike
B) Raising government purchases of goods and services by $400 billion
C) Decreasing government purchases of goods and services by $100 billion
D) Increasing government purchases of goods and services by $100 billion