If government expenditure on goods and services increases by $10 billion, then aggregate demand

Question

Quizplus · Accepted Answer

The correct answer is D because when the government increases its expenditure on goods and services, it directly increases aggregate demand by more than the initial amount spent, due to the government expenditure multiplier effect. This multiplier effect occurs as the initial spending leads to increased income for those who receive the initial spending, who then spend a portion of that income, leading to further increases in aggregate demand.

If Government Expenditure on Goods and Services Increases by $10