Suppose the multiplier is 5 and the government increases its purchases by $15 billion. Also, suppose the AD curve would shift from AD1 to AD2 if there were no crowding out; the AD curve actually shifts from AD1 to AD3 with crowding out. Also, suppose the horizontal distance between the curves AD1 and AD3 is $55 billion. The extent of crowding out, for any particular level of the price level, is:

a)  $20 billion.

b)  $30 billion.

c)  $75 billion.

d)  $40 billion.

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Initial increase in government purchases 15 billion Multiplier 5 So Expect... View the full answer