Consider the economy of NoTax, where the government expenditure multiplier is 2.5. If the government desires to shift the AD curve rightward by $5 billion, the correct increase in government expenditure is

Question

Quizplus · Accepted Answer

The government expenditure multiplier is 2.5, meaning that for every dollar the government spends, aggregate demand increases by 2.5 dollars. To shift the AD curve by $5 billion, the government should increase spending by $5 billion / 2.5 = $2 billion.

Consider the Economy of NoTax, Where the Government Expenditure Multiplier