If no fiscal policy changes are implemented to fight inflation, suppose the aggregate demand curve will exceed the current aggregate demand curve by 900 billion at any level of prices. Assuming the marginal propensity to consume is 0.90, this increase in aggregate demand could be prevented by:
a. increasing government spending by 500 billion.
b. increasing government spending by 140 billion.
c. decreasing taxes by 40 billion.
d. increasing taxes by 100 billion.
Question 2
Adam Smith listed three types of motives for people holding moneytransaction, precautionary, and speculative.
a. True
b. False
Indicate whether the statement is true or false
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