Assume That the MPC Is 0

Multiple Choice

Assume that the MPC is 0.8. Assume that there is a multiplier effect and that the total crowding-out effect is $7 billion. How will an increase in government purchases of $8 billion shift aggregate demand?

A) It will shift aggregate demand left by $1 billion.
B) It will shift aggregate demand left by $33 billion.
C) It will shift aggregate demand right by $1 billion.
D) It will shift aggregate demand right by $33 billion.