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Exhibit: Real GDP and the Multiplier

-(Exhibit: Real GDP and the Multiplier) If government purchases increase by $100 billion, the aggregate expenditures curve will shift up by $_______ billion.
A) 100
B) 250
C) 400
D) 500

Question

Use the following to answer questions .
Exhibit: Real GDP and the Multiplier
 
-(Exhibit: Real GDP and the Multiplier) If government purchases increase by $100 billion, the aggregate expenditures curve will shift up by $_______ billion.
A) 100 
B) 250 
C) 400 
D) 500

Quizplus · Accepted Answer

According to the exhibit, the multiplier is 2, which means that for every $1 increase in government purchases, real GDP will increase by $2. Therefore, if government purchases increase by $100 billion, the aggregate expenditures curve will shift up by $100 billion (not $200 billion, as the multiplier effect is already accounted for).

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