Suppose the MPC = 0

question 13

Multiple Choice

Suppose the MPC = 0.60 and government purchases increase by $40 billion.In Keynesian theory,which of the following is true?

• A) The TE curve shifts downward by $40 billion and Real GDP decreases by $40 billion.
• B) The TE curve shifts upward by $40 billion, and Real GDP increases by $40 billion.
• C) The TE curve shifts downward by $40 billion, and Real GDP decreases by $100 billion.
• D) The TE curve shifts upward by $40 billion, and Real GDP increases by $100 billion.

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