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19 January, 08:15

The government increases both its expenditures and taxes by $400 billion. There is no crowding out and no accelerator effect. Aggregate demand shifts by $400 billion. Which of the following is consistent with how far aggregate demand shifts?

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  1. 19 January, 10:52
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    Answer Choices:

    A. MPC = 1/2, and the effects of the increase in taxes is 1/2 as strong as the change in government expenditures.

    B. MPC = 2/3, and the effects of the increase in taxes is 2/3 as strong as the change in government expenditures

    C. MPC = 3/4, and the effects of the increase in taxes is 3/4 as strong as the change in government expenditures

    D. All of the above are correct.

    Answer:

    D. All of the above are correct.
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Home » Business » The government increases both its expenditures and taxes by $400 billion. There is no crowding out and no accelerator effect. Aggregate demand shifts by $400 billion. Which of the following is consistent with how far aggregate demand shifts?
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