An increase in government spending can be expected to shift the:
A)aggregate expenditures curve downward and the aggregate demand curve leftward.
B)aggregate expenditures curve upward and the aggregate demand curve leftward.
C)aggregate expenditures curve downward and the aggregate demand curve rightward.
D)aggregate expenditures curve upward and the aggregate demand curve rightward.

Question

Quizplus · Accepted Answer

An increase in government spending will directly increase the aggregate expenditures component (G) of the GDP equation - Y = C + I + G + NX. This will shift the aggregate expenditures curve upward. Since aggregate demand (AD) is equal to Y, any increase in Y will shift the AD curve rightward. Therefore, the correct answer is D.

An Increase in Government Spending Can Be Expected to Shift