Which of the following correctly describes the mechanics of the spending multiplier?
A)An initial increase in aggregate expenditures, such as an increase in government spending, shifts the aggregate expenditures curve upward vertically.
B)After the expenditures curve shifts upwards, the economy is not in equilibrium because aggregate expenditures now exceed aggregate output, leading to inventory depletion.
C)Real GDP increases in response to inventory depletion, eventually leading to a new higher level equilibrium real GDP.
D)All of the above answers are correct.

Question

Quizplus · Accepted Answer

The spending multiplier effect involves an initial increase in aggregate expenditures, leading to an upward shift in the expenditures curve. This causes aggregate expenditures to exceed aggregate output, resulting in inventory depletion. In response, real GDP increases until a new equilibrium is reached.

Which of the Following Correctly Describes the Mechanics of the Spending