Homework Answers
A. Initially the aggregate demand shifts by $95 billion
Reason- Initial shift = MPC* change in disposable income= 0.95*$100 billion= $95 billion
B. Ultimate shift in Aggregate demand is by $1900 billion.
Reason- multiplier= 1/1-MPC= 1/0.05= 20
Ultimate shift in AD= initial shift in AD* multiplier = $95 billion*20= $1900 billion
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