Question: Exhibit 11-3 Aggregate demand and supply model Price level (CPI) 250 200 150 125 100 0 m AS E AD Full employment AD 8.0

Exhibit 11-3 Aggregate demand and supply model Price level (CPI) 250 200 150 125 100 0 m AS E AD Full employment AD 8.0 8.5 9.0 9.5 10.0 10.5 Real GDP (trillions of dollars per year) 8.0 8.5 9.0 9.5 10.0 10.5 Real GDP (trillions of dollars per year) Suppose the economy in Exhibit 11-3 is in equilibrium at point E, and the marginal propensity to consume (MPC) is 0.80. Following Keynesian economics, to restore full employment, the government should cut taxes by: a. $0.20 trillion. O b.$0.50 trillion. O c. $1 trillion. O d. $250 billion.

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