Figure 13-6
-Refer to Figure 13-6. Suppose government purchases rise by $100. In the aggregate demand/aggregate supply model,
A) the aggregate demand curve shifts to the right by $100 at any given price level.
B) the aggregate demand curve shifts to the right by ($100 * the multiplier) at any given price level.
C) there is a downward movement along the aggregate demand curve such that real GDP demanded increases by $100.
D) there is a downward movement along the aggregate demand curve such that real GDP demanded increases by ($100 * the multiplier).

Question

Figure 13-6 
-Refer to Figure 13-6. Suppose government purchases rise by $100. In the aggregate demand/aggregate supply model,
A) the aggregate demand curve shifts to the right by $100 at any given price level. 
B) the aggregate demand curve shifts to the right by ($100 * the multiplier) at any given price level. 
C) there is a downward movement along the aggregate demand curve such that real GDP demanded increases by $100. 
D) there is a downward movement along the aggregate demand curve such that real GDP demanded increases by ($100 * the multiplier).

Quizplus · Accepted Answer

According to the multiplier effect, an increase in government spending leads to a larger increase in aggregate demand due to the ripple effects on other sectors of the economy. The size of this effect is determined by the multiplier, which is typically greater than one. Therefore, the aggregate demand curve shifts to the right by a multiple of the initial increase in government spending.

Figure 13-6 -Refer to Figure 13-6. Suppose Government Purchases Rise by $100