Assume That the MPC Is 0

question 115

Multiple Choice

Assume that the MPC is 0.75. Assuming only the multiplier effect matters, how will an increase in government purchases of $200 billion shift the aggregate demand curve?

• A) It will shift the aggregate demand curve left by $80 billion.
• B) It will shift the aggregate demand curve left by $250 billion.
• C) It will shift the aggregate demand curve right by $750 billion.
• D) It will shift the aggregate demand curve right by $800 billion.

---

Definitions:

Legal Reserves

Legal reserves are funds that financial institutions are required to hold in reserve against deposits made by their customers, as dictated by regulatory authorities.

Vault Cash

Physical money that is held in banks' vaults and ATMs, used to meet the bank's obligations to depositors.

Federal Reserve Bank

One of the 12 regional banks that, together with the Board of Governors, make up the Federal Reserve System, which serves as the central banking system of the United States.

Treasury Notes

Short- to medium-term debt obligations issued by a national government with fixed interest rates and maturities ranging from one to ten years.