If the marginal propensity to consume is 0.75 and there is a $10 million decrease in investment spending, the aggregate demand curve will shift…

right by $10 million.

C) Left by $10 million

D) Left by $40 million

Q8. If the economy is growing beyond potential real GDP (Inflationary gap), which of the following

would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply

(potential/full employment output)?

A) An increase in the money supply and a decrease in interest rates.

B) An increase in government purchases.

C) An increase in oil prices.

D) An increase in taxes.

Q9.For a model economy, the mpc (marginal propensity to consume) is 0.8

Current GDP is $60 million. Potential GDP is $100 million. To reach full employment (overcome

recessionary gap), government spending must

A) decrease by $40 million

B) increase by $8 million

C) decrease by $8 million

D) Increase by $40 million

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