Question

) If investment decreases by $20 billion and the economy's MPC is 0.5, the aggregate demand curve will shift A) leftward by $20 billion at each price level. B) rightward by $20 billion at each price level. C) leftward by $40 billion at each price level. D) rightward by $40 billion at each price level.

Answer 1

Answer:

Option C. Leftward by $40 billion at each price level

Explanation:

The shift would be leftward because the decrease in investment results the decrease in the aggregate demand which will decrease the aggregate demand by decrease in investment divided by multiplier 0.5, which gives $40 billion decrease in aggregate demand. So the result would be the leftward shift by $40 billion at each price level.