13) In the figure below to fight inflation the government is reducing the Aggregate demand by...
13) In the figure below to fight inflation the government is reducing the Aggregate demand by the amount of $________ trillion by decreasing government spending by $______ trillion and the multiplier is equal to_________:
- 0.8; 0.2; -4
- 0.8; 0.2; 1.6
- 0.2; 0.8; 4.
- 15.6; 14.8; 1.05
Homework Answers
Spending multiplier=1/MPS
Decrease in the AD= Multiplier* change in G
As it has been given that for fighting with inflation government has decreased its spending.
Hence it can be said that to fight inflation the government is reducing the Aggregate demand by the amount of $0.8 trillion by decreasing government spending by $0.2 trillion and the multiplier is equal to 4.
This is because change in AD=4*0.2
=0.8
Hence option C is the correct answer.
Add Answer to:
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