If the government reduces expenditure on goods and services by $30 billion,then aggregate demand
A)decreases by more than $30 billion and real GDP decreases.
B)decreases by $30 billion and real GDP decreases.
C)increases by $30 billion and real GDP increases.
D)increases and potential GDP increases.
E)increases by more than $30 billion and real GDP increases.

Question

Quizplus · Accepted Answer

When the government reduces expenditure, it decreases aggregate demand by more than the initial amount due to the multiplier effect, leading to a decrease in real GDP.

If the Government Reduces Expenditure on Goods and Services by $30