Answer to Question #60382 in Macroeconomics for Alex
Suppose the current rate of inflation is about 14% and there is an inflationary gap of $150 billion in the economy. Which of the following policies would be most appropriate to reduce inflation if the marginal propensity to save is equal to 0.05
A. Reduce government spending by $30 billion
B. Reduce government spending by $25 billion
C. Reduce G by $7.5 billion
D. Reduce G by $150 billion
E. Reduce G by $50 billion
Answer: C. Reduce G by $7.5 billion.
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