If net exports fall $40 billion,the MPC is 9/11,and there is a multiplier effect but no crowding out and no investment accelerator,then
A)aggregate demand falls by 2 x $40 billion.
B)aggregate demand falls by 11/2 x $40 billion.
C)aggregate demand falls by 11/9 x $40 billion.
D)aggregate demand falls by 9/11 x $40 billion.

Question

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1-MPC), which is 11/2 in this case. Therefore, the fall in aggregate demand is the multiplier times the change in net exports, which is 11/2 x $40 billion.

If Net Exports Fall $40 Billion,the MPC Is 9/11,and There