With the economy in a recession because of inadequate aggregate demand, the government increases its purchases by

Question:

With the economy in a recession because of 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 2/3. How large is the increase in aggregate demand?

a. $400

b. $800

c. $1,800

d. $3,600

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