In an article regarding Bangladesh's economy, the author suggests that the government ..."[g]ive double tax breaks on investment dollars. Give a tax break to R&D [research and development]. Give a tax break on donations to educational institutions."
www.groundreport.com, March 24, 2008
Suppose the multiplier in Bangladesh is 2. As a result of enacting the proposed policies, which of the following describe possible outcomes in the short run?
i.an $20 billion increase in investment will increase aggregate expenditure by $40 billion.
iI.the AE curve will shift upward.
iII.there will be an unplanned increase in inventories.

Question

Quizplus · Accepted Answer

An increase in investment with a multiplier of 2 will double the impact on aggregate expenditure, and the AE curve will shift upward due to increased spending. There is no indication of an unplanned increase in inventories.

In an Article Regarding Bangladesh's Economy, the Author Suggests That