Figure 34-5

question 197

Multiple Choice

Figure 34-5.On the left-hand graph,MS represents the supply of money and MD represents the demand for money;on the right-hand graph,AD represents aggregate demand.The usual quantities are measured along the axes of both graphs.

-Refer to Figure 34-5.Suppose the multiplier is 5 and the government increases its purchases by $10 billion.Also,suppose the AD curve would shift from AD₁ to AD₂ if there were no crowding out;the AD curve actually shifts from AD₁ to AD₃ with crowding out.Also,suppose the horizontal distance between the curves AD₁ and AD₃ is $20 billion.The extent of crowding out,for any particular level of the price level,is

• A) the horizontal distance between the curves MD₁ and MD₂.
• B) $40 billion.
• C) $30 billion.
• D) $20 billion.

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