Exhibit 1 Aggregate demand and supply model 115 Price W 110H level (CPI, 1982-84 E 100 =100) 90 AS Ez AD Full i Employment AD 6.0 6.5 Real GDP 3. (trillions of dollars per year) Suppose the economy in Exhibit 1 is in equilibrium at point E, and the marginal propensi to consumer (MPC) is 0.75. Following Keynesian economics, the federal government ca move the economy to full employment at point E by: a. decreasing government spending by $50 billion. b. decreasing government spending by $200 billion. c. increasing government spending by $125 billion. d. decreasing government spending by $500 billion. None of the above. e. Suppose the economy in Exhibit 1 is in equilibrium at point E, and the marginal propensity to consume (MPC) is 0.75. Following Keynesian economics, the federal government can move the economy to full employment at point E by: a. increasing government tax revenue by approximately $166 billion. b. decreasing government tax revenue by $66 billion. c. increasing government tax revenue by $500 billion. d. decreasing government tax revenue by $500 billion. e. decreasing government tax revenue by approximately $166 billion. Assume the marginal propensity to consume (MPC) is 0.90 and the government increases taxes by $100 billion. The aggregate demand curve will shift to the: a. left by $1,000 billion. b. right by $1,000 billion. C. d. left by $900 billion. right by $900 billion. e. None of the above.