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 and II
B) I and III
C) I, II and III
D) III and IV

Question

Quizplus · Accepted Answer

In the short run, an increase in government expenditure will shift the aggregate demand curve rightward and increase real GDP due to the multiplier effect. It does not directly increase the government expenditure multiplier or the tax multiplier; these are determined by other factors such as marginal propensities to consume and save.

In the Short Run, an Increase in Government Expenditure Will