Question

If investment increases by $10 billion, and the economy's MPC is 0.8, the aggregate demand curve will shift: Group of answer choicesleftward by $50 billion at each price level.rightward by $10 billion at each price level.rightward by $50 billion at each price level.leftward by $40 billion at each price level.

Answer 1

Answer:

rightward by $50 billion at each price level.

Explanation:

Any increase in aggregate expenditures resulting from changes in variables other than prices, will produce a rightward shift of the aggregate demand curve.

MPC = 0.8, therefore MPS = 0.2

the total change in the aggregate demand curve = $10 billion / 0.2 = 50 billion