-Refer to the graph in the exhibit.Assume the economy is in equilibrium with real GDP of $5 trillion.Suppose aggregate expenditure increases by $1 trillion.How would the economy's equilibrium real GDP most likely be affected?
A) It would increase by more than $1 trillion.
B) It would increase by $1 trillion.
C) It would increase by less than $1 trillion.
D) It would decrease by $1 trillion.

Question

-Refer to the graph in the exhibit.Assume the economy is in equilibrium with real GDP of $5 trillion.Suppose aggregate expenditure increases by $1 trillion.How would the economy's equilibrium real GDP most likely be affected?  
A) It would increase by more than $1 trillion. 
B) It would increase by $1 trillion. 
C) It would increase by less than $1 trillion. 
D) It would decrease by $1 trillion.

Quizplus · Accepted Answer

When aggregate expenditure increases, it leads to a multiplier effect in the economy, causing the equilibrium real GDP to increase by more than the initial increase in spending. This is because one person's spending becomes another person's income, which, when spent, becomes income for others, and so on, amplifying the initial increase in expenditure.

-Refer to the Graph in the Exhibit