With the economy in a recession due to inadequateaggregate demand, the government increases itspurchases by $1,200. Suppose the central bankadjusts the money supply to hold the interest rateconstant, investment spending remains unchanged,and the marginal propensity to consume is 23. Howlarge is the increase in aggregate demand?a. $400b. $800c. $1,800d. $3,600
With the economy in a recession due to inadequateaggregate demand, the government increases itspurchases by $1,200. Suppose the central bankadjusts the money supply to hold the interest rateconstant, investment spending remains unchanged,and the marginal propensity to consume is 23. Howlarge is the increase in aggregate demand?a. $400b. $800c. $1,800d. $3,600
Principles of Economics (MindTap Course List)
8th Edition
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter34: The Influence Of Monetary And Fiscal Policy On Aggregate Demand
Section: Chapter Questions
Problem 4CQQ
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Question
100%
With the economy in a recession due to inadequate
aggregate demand, the government increases its
purchases by $1,200. Suppose the central bank
adjusts the money supply to hold the interest rate
constant, investment spending remains unchanged,
and the marginal propensity to consume is 23. How
large is the increase in aggregate demand?
a. $400
b. $800
c. $1,800
d. $3,600
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