Scenario 16-2

Multiple Choice

Scenario 16-2. The following facts apply to a small, imaginary economy.
• Consumption spending is $5,200 when income is $8,000.
• Consumption spending is $5,536 when income is $8,400.
-Refer to Scenario 16-2. For this economy, an initial increase of $500 in government purchases translates into a

A) $1,428.57 increase in aggregate demand in the absence of the crowding-out effect.
B) $3,125.00 increase in aggregate demand in the absence of the crowding-out effect.
C) $1,428.57 increase in aggregate demand when the crowding-out effect is taken into account.
D) $3,125.00 increase in aggregate demand when the crowding-out effect is taken into account.