Assume That the MPC Is 0

question 191

Multiple Choice

Assume that the MPC is 0.8. Assume that there is a multiplier effect and that the total crowding-out effect is $7 billion. How will an increase in government purchases of $8 billion shift aggregate demand?

• A)It will shift aggregate demand left by $1 billion.
• B)It will shift aggregate demand left by $33 billion.
• C)It will shift aggregate demand right by $1 billion.
• D)It will shift aggregate demand right by $33 billion.

---

Definitions:

Ownership Interest

A stake or share in an asset or entity, giving the holder a claim to a portion of its equity or assets and possibly a share in its profits.

Limited

A form of corporate structure whereby the shareholders' liability is limited to the capital they have invested in the company.

Consolidation Adjustments

Adjustments made to combine the financial statements of parent and subsidiary companies into a single set of financial statements.

Non-Controlling Interest

A financial concept referring to a minority ownership in a company, holding less than 50% of the stock.