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

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Definitions:

Neurotransmitters

Chemical messengers that transmit signals across the synaptic gaps between neurons.

Contingency Contract

A formal agreement between two parties where certain behaviors are linked with specific consequences or rewards.

Behavioral Change

The process of altering patterns of behavior, typically in order to improve health or social outcomes.

Reinforcements

In behavior psychology, any event that strengthens or increases the likelihood of a behavior occurring again.