Suppose a country decreases government purchases by $400 billion. Suppose the government spending multiplier is 1.5 and the economy's real GDP is $8,000 billion. This contractionary policy action shifts the aggregate demand curve to the left by

Question

Quizplus · Accepted Answer

The decrease in government purchases by $400 billion, with a government spending multiplier of 1.5, results in a leftward shift of the aggregate demand curve by $400 billion * 1.5 = $600 billion.

Suppose a Country Decreases Government Purchases by $400 Billion