Suppose the price level is fixed, the MPC is .5, and the GDP gap is a negative $80 billion. To achieve full-employment output (exactly), government should:

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

ANSWER:

D)
reduce taxes by $80 billion.