Multiple Choice
Suppose the closed economy is in long-run equilibrium. Pessimism on the part of investors then shifts the aggregate demand curve $50 billion to the left. The government wants to increase spending in order to avoid a recession. If the crowding-out effect is always half as strong as the multiplier effect, and if the MPC equals 0.8, by how much do government purchases have to rise?
A) $10 billion
B) $20 billion
C) $50 billion
D) $100 billion
Correct Answer:
Verified
Correct Answer:
Verified
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