The larger the multiplier, the _________the AE curve and the ___________the AD curve from an increase in investment.
A) flatter; larger the movement along
B) steeper; smaller the shift in
C) flatter; smaller the movement along
D) steeper; larger the shift in

Question

Quizplus · Accepted Answer

A larger multiplier means that a given change in investment will generate a larger shift in the AD curve. This is because the multiplier represents the cumulative effect of initial spending on subsequent rounds of spending in the economy. As a result, a larger multiplier implies that the initial increase in investment will lead to a greater increase in consumption, which in turn will lead to further increases in output and income. Therefore, the AD curve will shift by a larger amount. Conversely, a smaller multiplier would mean that the initial increase in investment would have a smaller effect on overall spending, and hence a smaller shift in the AD curve. The slope of the AE curve is not influenced by the size of the multiplier, but by the marginal propensity to consume and the marginal tax rate. A steeper AE curve would imply a greater increase in consumption from a given increase in income.

The Larger the Multiplier, the _________The AE Curve and the ___________The

The Larger the Multiplier, the _The AE Curve and the ___The