In the short run, an increase in government expenditure will
I. shift the aggregate demand curve rightward.
II. increase real GDP.
III. increase the government expenditure multiplier.
IV. increase the tax multiplier.
A) I, II and III
B) I and II
C) I and III
D) III and IV

Question

Quizplus · Accepted Answer

An increase in government expenditure directly increases aggregate demand, shifting the aggregate demand curve rightward (I). This increase in demand can lead to a higher real GDP in the short run (II). However, the government expenditure multiplier and the tax multiplier are constants in the short run and do not increase due to a change in government spending.

In the Short Run, an Increase in Government Expenditure Will