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If the marginal propensity to consume is 0.75, and there is no investment accelerator or crowding out, a $15 billion increase in government expenditures would shift the aggregate demand curve right by:__________.
a. $60 billion, but the effect would be larger if there were an investment accelerator.
b. $60 billion, but the effect would be smaller if there were an investment accelerator.
c. $45 billion, but the effect would be larger if there were an investment accelerator.
d.$45 billion, but the effect would be smaller if there were an investment accelerator.

Respuesta :

Answer: B. $60 billion, but the effect would be smaller if there were an investment accelerator.

Explanation:

The above question is solved below:

MPC = 0.75

Shift in aggregate demand will then be:

= (1/1-MPC) × ∆G

= (1/1-0.75) × 15

= (1/0.25) × 15

= 4 × 15

= $60 billion

Assuming there was an investment accelerator, the result above will be smaller. Therefore, the correct option is B"$60 billion, but the effect would be smaller if there were an investment accelerator".

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