If a spending shock increases aggregate expenditure by $75 million and the multiplier is 3, then the IS curve will shift:
A)right by $225 million.
B)left by $225 million.
C)left by $75 million.
D)right by $75 million.

Question

Quizplus · Accepted Answer

The spending shock of $75 million increases aggregate expenditure, which by the multiplier effect, will result in a total increase in output of $225 million ($75 million x 3). This shift in output will cause a rightward shift in the IS curve.

If a Spending Shock Increases Aggregate Expenditure by $75 Million