Initially,the Economy Is in Long-Run Equilibrium

question 83

Multiple Choice

Initially,the economy is in long-run equilibrium.Aggregate demand then shifts leftward by $50 billion.The government wants to increase its spending in order to avoid a recession.If the crowding-out effect is always one-third as strong as the multiplier effect,and if the MPC equals 0.6,then by how much do government purchases have to increase in order to offset the $50 billion leftward shift?

• A)by $90 billion
• B)by $60 billion
• C)by $20 billion
• D)by $30 billion

---

Definitions:

Turns Gaze

The act of directing one's look or attention from one point or object to another, often used to study attention and social cues in developmental psychology.

Evolved System

A complex structure or entity that has developed gradually over time through a process of evolution, adaptation, or innovation.

Attachment Relationships

Emotional bonds that form between individuals, such as those between children and their caregivers, which can influence the individuals' behavior and development.

Substitute Mothers

Individuals or entities that provide maternal care and nurturing in the absence or inadequacy of a child's biological mother.