Assume the MPC Is 0

question 126

Multiple Choice

Assume the MPC is 0.80. Assume there is a multiplier effect and that the total crowding-out effect is $7 billion. An increase in government purchases of $40 billion will shift aggregate demand to the

• A)left by $165 billion.
• B)left by $193 billion.
• C)right by $193 billion.
• D)right by $165 billion.

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Definitions:

Utility Function

A mathematical representation in economics that assigns a value to each possible choice or bundle of goods to reflect the satisfaction or happiness a consumer derives from it.

Consumption

The application of goods and services by domestic units.

Interest Rate

The percentage of a sum of money charged for its use, determining the cost of borrowing or the return on investment.

Income

Earnings received by an individual or entity, typically through wages, investments, or business activities, over a certain period.