If the MPC is 0.50 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $205 billion will eventually shift the aggregate demand curve to the right by
A)$216 billion.
B)$150 billion.
C)$410 billion.
D)$480 billion.

Question

Quizplus · Accepted Answer

The multiplier effect is calculated as 1/(1-MPC), which in this case is 1/(1-0.50) = 2. Therefore, an initial increase in aggregate demand of $205 billion will eventually lead to a total shift in the aggregate demand curve of 205 billion * 2 = $410 billion.

If the MPC Is 0