Assume That the MPC Is 0

question 96

Multiple Choice

Assume that the MPC is 0.8. Assume that there is a multiplier effect and that the total crowding-out effect is $8 billion. How will an increase in government purchases of $10 billion shift aggregate demand?

• A) It will shift aggregate demand left by $2 billion.
• B) It will shift aggregate demand left by $42 billion.
• C) It will shift aggregate demand right by $2 billion.
• D) It will shift aggregate demand right by $42 billion.

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