If a spending shock increases aggregate expenditure by $35 billion and the multiplier is 2.5, then the IS curve will shift:
A)left by $35 billion.
B)left by $14 billion.
C)right by $87.5 billion.
D)right by $35 billion.

Question

Quizplus · Accepted Answer

The IS curve will shift right by the total change in GDP, which is the spending shock ($35 billion) multiplied by the multiplier (2.5), resulting in a shift of $87.5 billion.

If a Spending Shock Increases Aggregate Expenditure by $35 Billion