Question

Assume the multiplier is 5 and that the crowding-out effect is $30 billion. An increase in government purchases of $20 billion will shift the aggregate-demand curve to the Select one: a. right by $130 billion b. right by $70 billion c. right by $50 billion d. right by $10 billion

Answer 1

Answer:

b. right by $70 billion

Explanation:

The computation of the amount that shift to the aggregate demand curve is shown below;

= Multiplier × government purchase - crowding out effect

= 5 × $20 billion - $30 billion

= $100 billion - $30 billion

= $70 billion

So it would right by $70 billion

hence, the correct option is b,

The other options seems incorrect