If a component of aggregate demand increases,
A)GDP in the United States is likely to increase less than that component of spending increased.
B)GDP in the United States is likely to increase more than that component of spending increased.
C)GDP in the United States is likely to decrease.
D)GDP in the United States will not change.

Question

Quizplus · Accepted Answer

An increase in any component of aggregate demand (consumption, investment, government spending, net exports) leads to an increase in GDP. However, the magnitude of the increase in GDP will depend on the multiplier effect. In the short run, the multiplier effect will amplify the impact of the increase in spending, so GDP will increase more than that component of spending increased.

If a Component of Aggregate Demand Increases