Suppose that investment decreases by $15 billion. If the multiplier is 2.5, the aggregate demand curve
A)shifts leftward by a horizontal distance of $37.5 billion.
B)shifts leftward by a horizontal distance greater than $37.5 billion.
C)shifts leftward by a horizontal distance less than $37.5 billion.
D)shifts upward by a vertical distance of $37.5 billion.
E)is not affected.

Question

Quizplus · Accepted Answer

The aggregate demand curve shifts leftward by the total change in spending, which is the initial decrease in investment ($15 billion) multiplied by the multiplier (2.5), resulting in a shift of $37.5 billion.

Suppose That Investment Decreases by $15 Billion