Suppose that investment increases by $10 billion. If the multiplier is 2, the AD curve
A)shifts rightward by the horizontal distance $20 billion.
B)shifts rightward by a horizontal distance greater than $20 billion.
C)shifts rightward by a horizontal distance less than $20 billion.
D)is not affected.
E)shifts upward by a vertical distance equal to $20 billion.

Question

Quizplus · Accepted Answer

The multiplier effect means that an initial increase in investment of $10 billion will lead to a total increase in aggregate demand of $20 billion (10 billion x 2), shifting the AD curve rightward by that amount.

Suppose That Investment Increases by $10 Billion