When government purchases increase,the spending multiplier tells us the
A)amount of movement along the aggregate demand curve
B)amount of movement along the aggregate supply curve
C)size of the rightward shift of the aggregate demand curve at a given price level
D)size of the rightward shift of the aggregate supply curve at a given price level
E)size of the expansionary gap

Question

Quizplus · Accepted Answer

The spending multiplier indicates the size of the impact on aggregate demand resulting from a change in government purchases or any other autonomous spending. Therefore, an increase in government purchases will result in a rightward shift of the aggregate demand curve at a given price level, and the size of the shift is determined by the spending multiplier. Choices A and B are incorrect because they refer to movement along curves, which is not what the spending multiplier measures. Choice D is incorrect because changes in aggregate supply are determined by factors such as changes in production technology or input prices, and are not directly affected by changes in government purchases. Choice E is also incorrect because the expansionary gap is a measure of the difference between actual and potential GDP, and is not directly related to changes in government purchases.

When Government Purchases Increase,the Spending Multiplier Tells Us the