Economics (AS & A Level) · Oct / Nov 2021 · Paper 33 · Question 26

In a closed economy with no government there is an equilibrium level of national income of $1000 billion. The households always spend 80% of the income they receive. If full employment occurs when national income is $1200 billion, by how much must aggregate demand initially change to close the economy's deflationary gap?

1. A–$200 billion
2. B–$40 billion
3. C+$40 billion
4. D+$200 billion

As printed in the paper