Assume an economy is in equilibrium at a real GDP of $5 trillion.If aggregate expenditure (AE)increases by $1 trillion,the economy's equilibrium real GDP is likely to _____.
A)increase by $1 trillion
B)increase by more than $1 trillion
C)increase by less than $1 trillion
D)decrease by $1 trillion
E)decrease by more than $1 trillion

Question

Quizplus · Accepted Answer

The multiplier effect in economics suggests that an initial increase in spending leads to a larger increase in real GDP. Therefore, if aggregate expenditure increases by $1 trillion, the economy's equilibrium real GDP is likely to increase by more than $1 trillion due to this multiplier effect.

Assume an Economy Is in Equilibrium at a Real GDP