The aggregate demand curve will shift to the right ________ the initial increase in government purchases.
A)by less than
B)by more than
C)by the same amount as
D)sometimes by more than and other times by less than

Question

Quizplus · Accepted Answer

When the government increases its purchases, it will lead to an increase in consumer income and subsequently, an increase in consumption expenditure, which in turn leads to a further increase in aggregate demand. As a result, the aggregate demand curve shifts to the right by more than the initial increase in government purchases. This is because the multiplier effect amplifies the initial increase in government expenditure as it stimulates additional spending and demand in the economy.

The Aggregate Demand Curve Will Shift to the Right ________