g If investment decreases by $20 billion and the economy's MPC is 0.5, the aggregate demand curve will shift A) leftward by $20 billion at each price level. B) rightward by $20 billion at each price level. C) leftward by $40 billion at each price level. D) rightward by $40 billion at each price level.

Question

Business

Sebastian Glover

6 October, 08:42

g If investment decreases by $20 billion and the economy's MPC is 0.5, the aggregate demand curve will shift A) leftward by $20 billion at each price level. B) rightward by $20 billion at each price level. C) leftward by $40 billion at each price level. D) rightward by $40 billion at each price level.

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Answers (1)

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Jazlyn Anthony · Answer 1

The answer is C

Explanation:

Multiplier effect = 1 : (1-MPC)

MPC (Marginal Propensity to Consume) = 0.5

1 - 0.5 = 0.5

So we have;

1 : 0.5

2

And the investment decreases by $20 billion.

Therefore we have:

2 x $20 billion = $40billion.

Because it is a decrease, the aggregate demand curve will shift to the left at each price level.

If it is an increase, the aggregate demand curve will shift to the right