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Excess & Deficient Demand · Question 43 of 53

Question 43

HardOriginal question

There is a deflationary gap of ₹50 crore and the MPC is 0.8. To reach full employment, government spending should rise by

Options for question 43

Show the answer and explanation
CorrectNot quiteAnswer C

Correct answer: C

Explanation

  1. The gap is the shortfall of AD at full employment, so AD must rise by ₹50 crore.

  2. A ₹50 crore rise in G does that; income then rises by 5 × 50 = 250 to full employment.

Worth noting

₹250 crore is the rise in income, not the rise in spending needed.

Concept
Closing a deflationary gap
Typical time
100 s
Your time
—
The rule this testsFiscal measures
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