Assuming the multiplier effect but no crowding-out or investment-accelerator effects,what is the effect of a $300 billion increase in government expenditures on the aggregate demand?
A)It shifts the aggregate demand right by more than $300 billion.
B)It shifts the aggregate demand right by less than $300 billion.
C)It shifts the aggregate demand left by more than $300 billion
D)It shifts the aggregate demand left by less than $300 billion.

Question

Quizplus · Accepted Answer

According to the multiplier effect, an increase in government expenditures will increase the income and spending of consumers and businesses, which will further increase aggregate demand. If there are no crowding-out or investment-accelerator effects, the increase in government expenditures will be multiplied through the economy, resulting in a larger increase in aggregate demand. Therefore, the aggregate demand will shift right by more than $300 billion.

Assuming the Multiplier Effect but No Crowding-Out or Investment-Accelerator Effects,what