Figure 34-5

question 303

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 graphs are drawn to show the effects of an increase in government purchases.If it were not for the increase in r from r₁ to r₂,then

• A) there would be no crowding out.
• B) the full multiplier effect of the increase in government purchases would be realized.
• C) the AD curves that actually apply,before and after the change in government purchases,would be separated horizontally by the distance equal to the multiplier times the change in government purchases.
• D) All of the above are correct.

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Definitions:

Demand Schedule

A table of numbers showing the amounts of a good or service buyers are willing and able to purchase at various prices over a specified period of time.

Utility Maximization

Utility Maximization is the economic principle that individuals or firms seek to achieve the highest satisfaction or benefit from their resources.

Marginal Utility

The extra contentment or usefulness experienced by consuming one more unit of a good or service.

Utility Maximization

The process by which individuals allocate their resources to maximize their satisfaction or utility.