Suppose That the MPC Is 0

question 7

Multiple Choice

Suppose that the MPC is 0.5 and there is no investment accelerator or crowding-out effects. If government expenditures increase by $200 billion, what happens to aggregate demand?

• A) It shifts right by $200 billion.
• B) It shifts left by $200 billion.
• C) It shifts right by $400 billion.
• D) It shifts left by $400 billion.

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Definitions:

Decisions at the Margin

Economical decision-making process involving small changes to existing conditions, analyzing the cost and benefit of incremental adjustments.

Additional Costs

Expenses that are not initially accounted for in the budget or pricing but arise during the execution of a project or the production of goods.

Marginal Analysis

Marginal analysis refers to the examination of the benefits and costs of a small (marginal) change in the production, consumption, or allocation of resources.

Ceteris Paribus

A principle in economics that states other conditions remain constant while one variable changes.