When government purchases increase, what does the spending multiplier illustrate?
A) the amount of movement along the aggregate demand curve
B) the amount of movement along the aggregate supply curve
C) the extent of the rightward shift of the aggregate demand curve at a given price level
D) the extent of the rightward shift of the aggregate supply curve at a given price level

Question

When government purchases increase, what does the spending multiplier illustrate?  
A) the amount of movement along the aggregate demand curve 
B) the amount of movement along the aggregate supply curve 
C) the extent of the rightward shift of the aggregate demand curve at a given price level 
D) the extent of the rightward shift of the aggregate supply curve at a given price level

Quizplus · Accepted Answer

The spending multiplier illustrates the extent of the rightward shift of the aggregate demand curve at a given price level. When government purchases increase, this leads to an increase in aggregate demand, which shifts the curve to the right. The spending multiplier measures how much additional output (GDP) will be generated from this increase in government spending.

When Government Purchases Increase, What Does the Spending Multiplier Illustrate