Suppose a country increases government purchases by $700 billion. Suppose the government spending multiplier is 2 and the economy's real GDP is $6,000 billion. This policy action shifts the aggregate demand curve to the right by

Question

Quizplus · Accepted Answer

The formula for the impact of government spending on aggregate demand is GDP multiplier x change in government spending. In this case, the change in government spending is $700 billion and the GDP multiplier is 2. Therefore, the impact on aggregate demand is 2 x $700 billion = $1,400 billion.

Suppose a Country Increases Government Purchases by $700 Billion