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With the economy in a recession because of inadequate aggregate demand, the government increases its purchases by $1,200. Suppose the central bank adjusts the money supply to hold the interest rate constant, investment spending is fixed, and the marginal propensity to consume is 2/3.
How large is the increase in aggregate demand?
A. $400
B. $800
C. $1,800
D. $3,600
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Answers: 2
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