If the MPC is 0.5, and the government cuts spending by $400b, the overall effect on GDP will be:

The "income effect" in the market for aspirin means that

A) aspirin are generally taken by people with higher than average incomes. B) a decrease in the price of a substitute good like acetaminophen will make aspirin takers feel a little poorer than they were before. C) an increase in the price of aspirin will reduce the total purchasing power of aspirin takers, making them able to afford fewer aspirin. D) an increase in the price of aspirin will cause headache sufferers to look for a lower priced remedy.

Refer to the graph above. Which of the following changes will shift AD 1 to AD 2?

A cut in personal and business taxes A shrinkage in the value of stocks and other financial assets An increase in the value of the dollar relative to other currencies An increase in real interest rates