Figure 1. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs. MS P AD₂ AD3 AD1 MD₂ MD Y Refer to Figure 1. Suppose the multiplier is 3 and the government increases its purchases by $25 billion. Also, suppose the AD curve would shift from AD₁ to AD₂ if there were no crowding out; the AD curve actually shifts from AD₁ to AD3 with crowding out. Finally, assume the horizontal distance between the curves AD₁ and AD3 is $30 billion. The extent of crowding out, for any particular level of the price level, is Select one: a. $30 billion. b. $25 billion. c. $60 billion. Od. $45 billion.
Figure 1. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs. MS P AD₂ AD3 AD1 MD₂ MD Y Refer to Figure 1. Suppose the multiplier is 3 and the government increases its purchases by $25 billion. Also, suppose the AD curve would shift from AD₁ to AD₂ if there were no crowding out; the AD curve actually shifts from AD₁ to AD3 with crowding out. Finally, assume the horizontal distance between the curves AD₁ and AD3 is $30 billion. The extent of crowding out, for any particular level of the price level, is Select one: a. $30 billion. b. $25 billion. c. $60 billion. Od. $45 billion.
Chapter9: Aggregate Demand
Section: Chapter Questions
Problem 6.13P
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