Refer to Figure 13.5 for the following question.
Figure 13.5

-Refer to Figure 13.5. If government purchases increase by $100 billion and lead to an ultimate increase in aggregate demand as shown in the graph, the difference in real GDP between point A and point B will be:
A)$100 billion.
B)less than $100 billion.
C)more than $100 billion.
D)There is insufficient information given here to make a conclusion.

Question

Refer to Figure 13.5 for the following question.
Figure 13.5
 
-Refer to Figure 13.5. If government purchases increase by $100 billion and lead to an ultimate increase in aggregate demand as shown in the graph, the difference in real GDP between point A and point B will be:
A)$100 billion. 
B)less than $100 billion. 
C)more than $100 billion. 
D)There is insufficient information given here to make a conclusion.

Quizplus · Accepted Answer

Point A represents the initial equilibrium level of real GDP and aggregate demand. Point B represents the new equilibrium level of real GDP and aggregate demand after the increase in government purchases. The difference in real GDP between point A and point B is the distance between the two vertical lines. This difference appears to be more than $100 billion, indicating that the increase in government purchases caused an increase in real GDP that exceeded the size of the initial shock. Therefore, the correct answer is (C) more than $100 billion.

Refer to Figure 13.5 for the Following Question