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 one-third as strong as the multiplier effect,and if the MPC equals 0.6,then by how much do government purchases have to increase in order to offset the $50 billion leftward shift?
A) by $90 billion
B) by $60 billion
C) by $20 billion
D) by $30 billion
Correct Answer:
Verified
Correct Answer:
Verified
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