Real GDP Equals $400 Billion, the Government Collects 25% of Any

Multiple Choice

Real GDP equals $400 billion, the government collects 25% of any increase in real GDP in the form of taxes, and the marginal propensity to consume is 0.8. If potential output equals $250 billion, the government could close the _____ gap by decreasing government spending by _____.

A) recessionary; $30 billion
B) recessionary; $150 billion
C) inflationary; $30 billion
D) inflationary; $60 billion