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

Question

Quizplus · Accepted Answer

According to the formula for the multiplier effect, a $10 billion increase in investment would shift the AD curve rightward by a horizontal distance of $20 billion (multiplier of 2 multiplied by the initial $10 billion increase). Therefore, the correct answer is D.

Suppose That Investment Increases by $10 Billion