Suppose that in an economy with a MPC of .5 the government wanted to shift the aggregate demand curve rightward by $80 billion at each price level to expand real GDP. It could:

A)
reduce taxes by $160 billion.
B)
increase government spending by $80 billion.
C)
reduce taxes by $40 billion.
D)
increase government spending by $40 billion.

ANSWER:

D)
increase government spending by $40 billion.