High School

If the government reduces expenditure by $35 billion in an economy where MPC = 6/10, what will the change in aggregate demand be equal to?

A. 97.5 billion dollars
B. 107.5 billion dollars
C. 87.5 billion dollars
D. No change will happen

Answer :

In this case, the change in aggregate demand is $21 billion, and none of the provided options match this value.

The change in aggregate demand can be calculated using the formula:
Change in Aggregate Demand = Change in Government Expenditure * MPC

In this case, the change in government expenditure is $35 billion and the MPC (Marginal Propensity to Consume) is 6/10 or 0.6.

Using the formula, we can calculate the change in aggregate demand:
Change in Aggregate Demand = $35 billion * 0.6
= $21 billion

Therefore, the change in aggregate demand will be $21 billion.

Since none of the given options match this value, none of the options provided in the question are correct.

To know more about aggregate demand, refer to the link below:

https://brainly.com/question/31191847#

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