Assuming the multiplier effect but no crowding-out or investment-accelerator effects, what is the effect of a $500 billion increase in government expenditures on the aggregate demand?
A) It shifts the aggregate demand right by more than $500 billion.
B) It shifts the aggregate demand right by less than $500 billion.
C) It shifts the aggregate demand left by more than $500 billion
D) It shifts the aggregate demand left by less than $500 billion.

Question

Quizplus · Accepted Answer

The multiplier effect suggests that an increase in government expenditures will result in a larger increase in aggregate demand, as the initial spending circulates through the economy, leading to additional spending beyond the initial amount.

Assuming the Multiplier Effect but No Crowding-Out or Investment-Accelerator Effects