Suppose That the MPC Is 0

question 75

Multiple Choice

Suppose that the MPC is 0.50 and there is no investment accelerator or crowding-out effects. If government expenditures increase by $20 billion, what happens to aggregate demand?

• A)It shifts right by $20 billion.
• B)It shifts right by $25 billion.
• C)It shifts right by $40 billion.
• D)It shifts left by $40 billion.

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Definitions:

Worker's Time

The amount of time an individual dedicates to labor or employment activities.

Constant Returns

A situation in production where increasing the quantity of inputs results in a proportional increase in the quantity of outputs, indicating a stable relationship between inputs and outputs.

Scale

refers to the size of a business operation or the capacity of a company's production output.

Production Function

An equation or model that describes the relationship between inputs (like labor and capital) and outputs (goods or services) in the production process.