Initially, the Economy Is in Long-Run Equilibrium

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 half as strong as the multiplier effect, and if the MPC equals 0.8, then by how much do government purchases have to increase in order to offset the $50 billion leftward shift?

A) by $5 billion
B) by $10 billion
C) by $20 billion
D) by $50 billion