Figure 24-6

question 26

Multiple Choice

Figure 24-6.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 24-6.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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Definitions:

Interest

The charge for borrowing money, typically expressed as an annual percentage of the loan amount, or the income earned from lending money.

Account

A record or statement that tracks financial transactions and the financial position of an individual, company, or other entity.

Balance

The equilibrium state where different elements are in the correct proportions or positions to create harmony or stability.

Immediate Payment

A payment method where the transaction is settled instantly or without any significant delay.