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4. 3.) Dene the Keynesian Theory of Liquidity Preference. b) Suppose economists observe that an increase in govemment spending of 700 crore take that raises the total demand for goods and services by 900 crore take. If economists imme the possibility of crowding out effect, calculate the marginal propensity to consume (MPG)? 5. SuPpose an economy is hit by a recession and people's income fall. a) Show graphically using AD-AS model how the price level and output are affected in the short-run. b} Can the government use scal policy to offset the effects on both price level and output simultaneously, explain