In an article regarding Bangladesh's economy, the author suggests that the government ..."[g]ive double tax breaks on investment dollars. Give a tax break to R&D [research and development]. Give a tax break on donations to educational institutions." www.groundreport.com, March 24, 2008
Suppose the multiplier in Bangladesh is 2. As a result of enacting the proposed policies, which of the following describe possible outcomes in the short run?
I. an $20 billion increase in investment will increase aggregate expenditure by $40 billion.
II. the AE curve will shift upward.
III. there will be an unplanned increase in inventories.

Question

Quizplus · Accepted Answer

An increase in investment by $20 billion with a multiplier of 2 will increase aggregate expenditure by $40 billion, and the AE curve will shift upward. There will not necessarily be an unplanned increase in inventories.

In an Article Regarding Bangladesh's Economy, the Author Suggests That