Suppose the level of potential GDP is $6,000 billion, but the equilibrium level of GDP is $7,500 billion. If the marginal propensity to consume is 0.67, how much should government spending be decreased to eliminate the inflationary gap? O $250 billion $1500 billion $500 billion O $125 billion
Suppose the level of potential GDP is $6,000 billion, but the equilibrium level of GDP is $7,500 billion. If the marginal propensity to consume is 0.67, how much should government spending be decreased to eliminate the inflationary gap? O $250 billion $1500 billion $500 billion O $125 billion
Chapter11: Managing Aggregate Demand: Fiscal Policy
Section: Chapter Questions
Problem 2TY
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![Suppose the level of potential GDP is $6,000 billion, but the equilibrium level
of GDP is $7,500 billion. If the marginal propensity to consume is 0.67, how
much should government spending be decreased to eliminate the inflationary
gap?
O $250 billion
$1500 billion
O $500 billion
O $125 billion](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6350757c-997e-4b8c-abb4-f70accf583b0%2Fee543824-09b7-43be-b947-86dfb3b96593%2Fj76oind_processed.png&w=3840&q=75)
Transcribed Image Text:Suppose the level of potential GDP is $6,000 billion, but the equilibrium level
of GDP is $7,500 billion. If the marginal propensity to consume is 0.67, how
much should government spending be decreased to eliminate the inflationary
gap?
O $250 billion
$1500 billion
O $500 billion
O $125 billion
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