Assuming the Crowding-Out Effect but No Multiplier or Investment-Accelerator Effects

question 60

Multiple Choice

Assuming the crowding-out effect but no multiplier or investment-accelerator effects, what is the effect of a $600 billion increase in government expenditures on the aggregate demand or supply?

• A) It shifts the aggregate demand right by more than $600 billion.
• B) It shifts the aggregate demand right by less than $600 billion.
• C) It shifts the aggregate supply left by more than $600 billion.
• D) It shifts the aggregate supply left by less than $600 billion.

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Definitions:

Plant Assets

Durable assets with physical form, employed in running a company and not meant for resale.

Year Ended

The conclusion of a 12-month accounting period, at which financial statements are prepared.

Straight-Line Method

A depreciation technique that allocates an equal amount of depreciation to each year of the asset's useful life.

Salvage Value

The predicted value of an asset on the market at the close of its effective life.