Figure 24-6

question 275

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 3 and the government increases its purchases by $25 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.Finally,assume the horizontal distance between the curves AD₁ and AD₃ is $30 billion.The extent of crowding out,for any particular level of the price level,is

• A) $25 billion.
• B) $30 billion.
• C) $45 billion.
• D) $60 billion.

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