Refer to the information provided in Figure 24.5 below to answer the question(s) that follow. Figure 24.5
-Refer to Figure 24.5. If the economy is in equilibrium and the government increases spending by $100 billion, equilibrium aggregate expenditures increase to $________ billion.

Question

Refer to the information provided in Figure 24.5 below to answer the question(s) that follow.  Figure 24.5
-Refer to Figure 24.5. If the economy is in equilibrium and the government increases spending by $100 billion, equilibrium aggregate expenditures increase to $________ billion.

Quizplus · Accepted Answer

The government spending multiplier is 2, so any increase in government spending will lead to an increase in equilibrium aggregate expenditures of 2 times the size of the spending increase. Therefore, an increase in spending of $100 billion will lead to an increase in equilibrium aggregate expenditures of $200 billion. Since equilibrium aggregate expenditures were initially at $1,800 billion, the new equilibrium aggregate expenditures will be $2,000 billion.

Refer to the Information Provided in Figure 24