Question

Assume the economy is in recession and real GDP is below full employment. The marginal propensity to consume(MPC) is 0.75, and the government follows Keynesian economics by following expansionary fiscal policy to increase aggregate demand (total spending). If an increase in $1000 billion aggregate demand can restore full employment, the government should:

a. increase spending by $250 billion. 

b. decrease spending by $750 billion. 

c. increase spending by $1000 billion. 

d. increase spending by $750 billion.