Suppose that a change in trade policies leads to a $20 billion increase in net exports. If the value of the multiplier is 2, what is the size of the shift in the aggregate demand after
The multiplier process works through the economy?
A) $40 billion
B) Less than $20 billion
C) More than $40 billion
D) Cannot be determined without information on the trade policies in question

Question

Quizplus · Accepted Answer

The multiplier effect amplifies the initial change in spending. With a multiplier of 2, a $20 billion increase in net exports results in a $40 billion increase in aggregate demand ($20 billion x 2 = $40 billion).

Suppose That a Change in Trade Policies Leads to a $20