Suppose There Are Both Multiplier and Crowding Out Effects but Without

question 411

Multiple Choice

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely

• A) shift aggregate demand right by a larger amount than the increase in government expenditures.
• B) shift aggregate demand right by the same amount as the increase in government expenditures.
• C) shift aggregate demand right by a smaller amount than the increase in government expenditures.
• D) Any of the above outcomes are possible.

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Definitions:

Monetary Neutrality

The concept that in the long run, changes in the money supply have no real effects on economic variables like output or employment, and only affect nominal variables such as prices.

Money Supply

The sum total of cash, coins, and checking and savings account balances available as financial assets in an economy at a certain moment.

Gold Discoveries

The finding of new gold reserves, which can impact economic conditions, including inflation rates and the wealth of a nation.

David Hume

An 18th-century Scottish philosopher, historian, economist, and essayist known for his influential ideas in economics, empiricism, and skepticism.