Figure 16-12
-Refer to Figure 16-12.An increase in government purchases causes aggregate demand to shift ultimately from AD₁ to AD₂.In the new equilibrium at point B,both real GDP and the price level have increased.The increase in real GDP is ________ than that indicated by the multiplier effect with a constant price level.

Question

Figure 16-12

-Refer to Figure 16-12.An increase in government purchases causes aggregate demand to shift ultimately from AD₁ to AD₂.In the new equilibrium at point B,both real GDP and the price level have increased.The increase in real GDP is ________ than that indicated by the multiplier effect with a constant price level.

Quizplus · Accepted Answer

The multiplier effect with a constant price level assumes that an increase in government spending will lead to an increase in real GDP but without any change in the price level. However, in this scenario, aggregate demand shifts to the right, causing both real GDP and the price level to increase. As a result, the increase in real GDP is less than what would have been generated by the multiplier effect with a constant price level.

Figure 16-12 -Refer to Figure 16-12.An Increase in Government Purchases Causes Aggregate