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##### Identify the government purchases multiplier

**Description**

solution

**Question**

Question 1;a) Identify the government purchases multiplier in these cases: MPC = 3/5, MPC =.85;b) Identify the MPC if the multiplier is 2.5, 5;Question 2;a) If the MPC is 0.80 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $100 billion will eventually shift the aggregate demand curve to the right by ?billion?;b) Assume that the MPC is 0.75. Assuming that only the multiplier effect matters, a decrease in government purchases of $10 billion will shift the aggregate demand curve to what direction? Calculate the movement of AD (? billions).;c) Assume that the MPC is 0.75. Assume that there is a multiplier effect and that the total crowding-out effect is $6 billion. An increase in government purchases of $10 billion will shift aggregate demand to what direction? Calculate the movement of AD (? billions).

Paper#29811 | Written in 18-Jul-2015

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