Assume That the MPC Is 0

question 96

Multiple Choice

Assume that the MPC is 0.8. Assume that there is a multiplier effect and that the total crowding-out effect is $8 billion. How will an increase in government purchases of $10 billion shift aggregate demand?

• A) It will shift aggregate demand left by $2 billion.
• B) It will shift aggregate demand left by $42 billion.
• C) It will shift aggregate demand right by $2 billion.
• D) It will shift aggregate demand right by $42 billion.

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Definitions:

Average Cost

Calculated by dividing the total cost of production by the number of goods produced, representing the cost per unit.

Minimum Price

The lowest legally allowed price at which a good or service can be sold, often set to protect producers or promote fair trade.

Scenario 1-3

A hypothetical or real situation used to illustrate a particular case or outcome, typically numbered for organization.

Marginal Cost

Marginal cost is the change in total cost that arises when the quantity produced is incremented by one unit; it's the cost of producing one more unit of a good.