Which of the following tends to make aggregate demand shift right farther than the amount that government expenditures increase?
A)the crowding-out effect
B)the multiplier effect
C)the wealth effect
D)the interest-rate effect

Question

Quizplus · Accepted Answer

The multiplier effect tends to amplify the impact of any increase in government expenditures, leading to a larger increase in aggregate demand than the initial increase in government spending. This is because as government spending increases, it leads to more income and increased consumption and investment, which further increases aggregate demand. The other options listed (crowding-out effect, wealth effect, and interest-rate effect) do not have as strong of an impact on increasing aggregate demand as the multiplier effect.

Which of the Following Tends to Make Aggregate Demand Shift