QUESTION 14 If the marginal propensity to consume is 56 and

QUESTION 14 If the marginal propensity to consume is 5/6, and there is no investment accelerator or government expenditures would shift the aggregate demand curve right by O a. 560 billion, but the effect would be larger if there were an investment accelerator O b.$120 billion, but the effect would be larger if there were an investment accelerator. O c. $60 billion, but the effect would be smaller if there were an investment accelerator O d.$120 billion, but the effect would be smaller if there were an investment accelerator

Solution

14. Change in Y = Change in Government expenditure / (1 - MPC)

Change in Y = 20 billion / (1 - 5/6)

Change in Y = 20 billion / (1/6) = 120 billion

d) $ 120 billion, but the effect would be smaller if there were an investment accelerator.