Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?
A)the crowding-out effect
B)the multiplier effect
C)the exchange-rate effect
D)the interest-rate effect

Question

Quizplus · Accepted Answer

The multiplier effect causes an initial increase in government expenditures to have a larger impact on aggregate demand than just the amount of the increase itself. This is because the increase in government spending creates additional income and increases consumer spending, which in turn leads to further increases in aggregate demand. The crowding-out effect, interest-rate effect, and exchange-rate effect all have the potential to reduce the impact of government expenditure increases on aggregate demand.

Which of the Following Tends to Make Aggregate Demand Shift