Figure 34-6.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. -Refer to Figure 34-6.Suppose the graphs are drawn to show the effects of an increase in government purchases.If it were not for the increase in r from r₁ to r₂,then A)there would be no crowding out. B)the full multiplier effect of the increase in government purchases would be realized. C)the AD curves that actually apply,before and after the change in government purchases,would be separated horizontally by the distance equal to the multiplier times the change in government purchases. D)All of the above are correct.

Question

Quizplus · Accepted Answer

An increase in government purchases would lead to a rightward shift in the aggregate demand curve. Without the increase in interest rates (r), there would be no crowding out, the full multiplier effect would be realized, and the AD curves would be separated by the multiplier times the change in government purchases.