Assume the AS curve is upward-sloping.If the multiplier is 4 and the government increases transfer payments by $10 billion,then real output will increase by

Question

Quizplus · Accepted Answer

The multiplier effect indicates that an initial change in spending will lead to a larger change in output. Here, with a multiplier of 4, a $10 billion increase in transfer payments would theoretically lead to a $40 billion increase in output. However, because the AS (Aggregate Supply) curve is upward sloping, part of this increase in demand will result in higher prices rather than a full increase in output. Therefore, the real output increase will be less than $40 billion, making A the correct choice.

Assume the AS Curve Is Upward-Sloping