If the multiplier is 4.0 and investment decreases by $2.5 billion, the AD curve
A) shifts rightward by $10 billion.
B) shifts rightward by less than $10 billion.
C) shifts leftward by $10 billion.
D) shifts leftward by more than $30 billion.

Question

Quizplus · Accepted Answer

The multiplier effect indicates that a change in investment will lead to a larger change in aggregate demand (AD). With a multiplier of 4.0, a decrease in investment by $2.5 billion results in the AD curve shifting leftward by 4 times $2.5 billion, which is $10 billion.

If the Multiplier Is 4