The marginal propensity to consume in an economy is 0.75. Thus, if the price level isfixed, a $200 increase in governmentspending would be expected to increase real GDP by $____

. (Round your answer to the nearestdollar.)

Now suppose that the economy is known to be at a level of GDP that is above full employment and that the price level is not fixed. If theshort-run aggregate supply curve(SRAS) is positivelysloped, which of the following is the most likely effect of the increase in governmentspending?

A.

Aggregate demand willincrease, but real GDP will not change.

B.

Aggregate demand willincrease, and real GDP will increase by less than $800.

C.

Aggregate demand willincrease, and real GDP will increase by more than $800.

D.

Aggregate demand willincrease, and real GDP will increase by $800.

E.

Aggregate demand will notchange, and real GDP will increase by less than $800.