Suppose the government embarks on an infrastructure program, spending $8 billion on the construction of new roads and bridges. What is the size of the multiplier if the AS curve is vertical?
A)0
B)greater than 1
C)infinity
D)less than 1
E)insufficient information to solve

Question

Quizplus · Accepted Answer

If the AS curve is vertical, it means that the economy is already producing at its full capacity and any increase in demand will only lead to inflation, not an increase in output. Therefore, the multiplier in this situation is zero.

Suppose the Government Embarks on an Infrastructure Program, Spending $8