If the MPC is 0.75 and there are no crowding-out or accelerator effects, an initial increase in AD of $200 billion will eventually shift the AD curve to the right by how much?
A)$80 billion
B)$133.33 billion
C)$150 billion
D)$800 billion

Question

Quizplus · Accepted Answer

The multiplier effect is calculated as 1/(1-MPC). With an MPC of 0.75, the multiplier is 1/(1-0.75) = 4. Therefore, an initial increase in AD of $200 billion will eventually shift the AD curve by 4 * $200 billion = $800 billion.

If the MPC Is 0