An increase in the aggregate expenditures schedule
A) increases aggregate demand by the amount of the increase in aggregate expenditures only.
B) increases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier.
C) decreases aggregate demand by the amount of the increase in aggregate expenditures.
D) decreases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier.

Question

Quizplus · Accepted Answer

An increase in the aggregate expenditures schedule will increase the aggregate demand by a multiple of the initial increase in aggregate expenditures due to the multiplier effect. This is because an increase in aggregate expenditures will lead to an increase in income, which in turn will lead to an increase in consumption expenditure, causing further increase in income and so on.

An Increase in the Aggregate Expenditures Schedule