Refer to figure 3 suppose the multiplier is 5 and the

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25. Refer to Figure-3 . Suppose the multiplier is 5 and the government increases its purchases by $15 billion. Also, suppose the AD curve would shift from AD 1 to AD 2 if there were no crowding out; the AD curve actually shifts from AD 1 to AD 3 with crowding out. Also, suppose the horizontal distance between the curves AD 1 and AD 3 is $55 billion. The extent of crowding out, for any particular level of the price level, is a. $75 billion. b. $40 billion. c. $30 billion. d. $20 billion. ANSWER: d TOPICS: DISC: Fiscal Policy Crowding Out 26. Refer to Figure-3 . Suppose the graphs are drawn to show the effects of an increase in government purchases. If it were not for the increase in r from r 1 to r 2 , then Scenario-1. Take the following information as given for a small, imaginary economy: When income is $10,000, consumption spending is $6,500. When income is $11,000, consumption spending is $7,250. 27. Refer to Scenario-1. The marginal propensity to consume for this economy is
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28. In a certain economy, when income is $400, consumer spending is $325. The value of the multiplier for this economy is 3.33. It follows that, when income is $450, consumer spending is 29. Consider the following sequence of events: price level demand for money equilibrium interest rate quantity of goods and services demanded Τhi s sequence explains why the a. money-supply curve is vertical. b. aggregate-demand curve shifts leftward in response to a monetary injection. c. aggregate-demand curve shifts rightward in response to a monetary injection. d. aggregate-demand curve slopes downward. ANSWER: d TOPICS: DISC: Macroeconomic Models The AD-AS Model Aggregate Demand 30. If the stock market booms, then
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