Assuming the multiplier effect but no crowding-out or investment-accelerator effects,what is the effect of a $400 billion increase in government expenditures on the aggregate demand?
A) It shifts the aggregate demand right by more than $400 billion.
B) It shifts the aggregate demand right by less than $400 billion.
C) It shifts the aggregate demand left by more than $400 billion
D) It shifts the aggregate demand left by less than $400 billion.

Question

Quizplus · Accepted Answer

The multiplier effect states that an increase in government spending will lead to a more than proportionate increase in aggregate demand. This is because the initial increase in spending will lead to an increase in income, which will then lead to an increase in consumption, which will then lead to an increase in investment, and so on.

Assuming the Multiplier Effect but No Crowding-Out or Investment-Accelerator Effects,what