Refer to the above diagram.The impact of the public sector on the equilibrium GDP:
A)is expansionary.
B)is contractionary.
C)is neutral.
D)cannot be determined from the information given.

Question

Refer to the above diagram.The impact of the public sector on the equilibrium GDP:
A)is expansionary. 
B)is contractionary. 
C)is neutral. 
D)cannot be determined from the information given.

Quizplus · Accepted Answer

The vertical distance between the original equilibrium GDP and the new equilibrium GDP after the government spending increase represents the impact of the public sector on GDP. Since the new equilibrium GDP is higher than the original equilibrium GDP, the impact of the public sector is expansionary.

Refer to the Above Diagram