Which of the following statements is true?

Question

Quizplus · Accepted Answer

A change in government purchases is likely to affect all components of real GDP, including consumption, investment, and net exports. This is because changes in government purchases can lead to changes in income, interest rates, and expectations, which in turn can affect the spending behavior of households, businesses, and foreign buyers. Therefore, option D is the true statement. Options A, B, and C are incorrect because they assume that government purchases have no spillover effects on other spending components, which is not generally true. Option E is incorrect because it implies that the multiplier effect is equal to 1, which is not generally true either.

Which of the Following Statements Is True