Government purchases are said to have a
A)multiplier effect on aggregate supply.
B)multiplier effect on aggregate demand.
C)liquidity-enhancing effect on aggregate supply.
D)liquidity-enhancing effect on aggregate demand.

Question

Quizplus · Accepted Answer

Government purchases have a multiplier effect on aggregate demand. When the government purchases goods and services, it increases the demand for them, leading to an increase in production and employment. This increase in employment leads to an increase in consumer spending, which leads to a further increase in demand, and so on. Thus, government purchases have a multiplier effect on aggregate demand.

Government Purchases Are Said to Have a