Exhibit 15-4 Aggregate Demand and Supply Model

Exhibit 15-4 Aggregate demand and supply model

-Suppose the economy in Exhibit 15-4 is in equilibrium at point E₁ and the marginal propensity to consume (MPC) is 0.75.Following Keynesian economics,the federal government can move the economy to point E₂ and reduce inflation by:

A) decreasing government tax revenue by $100 billion.
B) decreasing government tax revenue by $750 billion.
C) increasing government tax revenue by $100 billion.
D) increasing government tax revenue by approximately $33 billion.
E) decreasing government tax revenue by approximately $33 billion.