Assume the MPC Is 0

question 112

Multiple Choice

Assume the MPC is 0.75. Assume there is a multiplier effect and that the total crowding-out effect is $6 billion. An increase in government purchases of $10 billion will shift aggregate demand to the

• A)left by $24 billion.
• B)left by $36 billion.
• C)right by $34 billion.
• D)right by $36 billion.

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Definitions:

Liquidity Traps

A situation in which monetary policy becomes ineffective because people hoard cash instead of spending or investing due to expectations of adverse events.

Central Bank

A central bank is the national financial authority responsible for overseeing the monetary system, managing currency supply, and aiming to maintain economic stability.

Lower Bound

A minimum level, often referring to the lowest interest rate that can be effectively implemented by central banks.

Money Supply

The total amount of monetary assets available in an economy at a specific time, which includes cash, coins, and balances held in checking and savings accounts.