MS AD, MD2 AD3 AD1 70. Please see graphs above. Suppose the multiplier is 5 and the government increases its purchases by $15 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. Also, suppose the horizontal distance between the curves AD1 and AD3 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.
MS AD, MD2 AD3 AD1 70. Please see graphs above. Suppose the multiplier is 5 and the government increases its purchases by $15 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. Also, suppose the horizontal distance between the curves AD1 and AD3 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.
Chapter15: Fiscal Policy
Section: Chapter Questions
Problem 7SQ
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Question
Can you explain how the right ansswer could be D?
![MS
AD2
AD3
AD1
MD2
- MD,
1
70. Please see graphs above. Suppose the multiplier is 5 and the government increases its purchases
by $15 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. Also, suppose the horizontal
distance between the curves AD1 and AD3 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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1208b77f-2b7a-42eb-a6cf-82e13d76e0d1%2F81ebf7f1-e426-4ed2-bfe9-4075f872f049%2Fhm1l8yj_processed.png&w=3840&q=75)
Transcribed Image Text:MS
AD2
AD3
AD1
MD2
- MD,
1
70. Please see graphs above. Suppose the multiplier is 5 and the government increases its purchases
by $15 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. Also, suppose the horizontal
distance between the curves AD1 and AD3 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.
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