Suppose net exports decreases by $100 million due to a slump in foreign economies. If the the value of the multiplier is 2, what happens to the domestic aggregate demand curve?
A) Since less will be produced, the aggregate demand does not shift. The aggregate supply curve shifts to the left by $100 million at each price level.
B) It shifts to the left by $50 million at each price level.
C) It shifts to the left by $100 million at each price level.
D) It shifts to the left by $200 million at each price level.

Question

Quizplus · Accepted Answer

The decrease in net exports by $100 million, with a multiplier of 2, results in a total decrease in aggregate demand of $200 million (100 million x 2).

Suppose Net Exports Decreases by $100 Million Due to a Slump