Assuming a multiplier effect,but no crowding-out or investment-accelerator effects,a $100 billion increase in government expenditures shifts aggregate
A)demand rightward by more than $100 billion.
B)demand rightward by less than $100 billion.
C)supply leftward by more than $100 billion.
D)supply leftward by less than $100 billion.

Question

Quizplus · Accepted Answer

According to the multiplier effect, an increase in government spending will lead to an increase in aggregate demand by a multiple of the initial increase. If we assume a multiplier of 1.5, for example, a $100 billion increase in government spending would result in a $150 billion increase in aggregate demand. Therefore, the correct answer is A, as the rightward shift in demand would be greater than $100 billion.

Assuming a Multiplier Effect,but No Crowding-Out or Investment-Accelerator Effects,a $100