-Refer to Figure 7.3. The diagram demonstrates that an increase in government expenditure:

Name: -Refer to Figure 7.3. The diagram demonstrates that an increase in government expenditure:
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An increase in government expenditure directly increases aggregate demand, leading to a higher equilibrium real GDP, as depicted in the diagram. It does not necessarily increase investment (which could be crowded out) or the marginal propensity to consume (MPC), which is a behavioral parameter.