Exhibit 11-2

-Refer to the graph in the exhibit.Consider an economy characterized by the aggregate expenditure line.How would a $100 increase in autonomous government spending affect real GDP?
A) It would decrease real GDP by $100.
B) It would decrease real GDP by $200.
C) It would increase real GDP by $100.
D) It would increase real GDP by $200.

Question

Exhibit 11-2
 
-Refer to the graph in the exhibit.Consider an economy characterized by the aggregate expenditure line.How would a $100 increase in autonomous government spending affect real GDP?  
A) It would decrease real GDP by $100. 
B) It would decrease real GDP by $200. 
C) It would increase real GDP by $100. 
D) It would increase real GDP by $200.

Quizplus · Accepted Answer

An increase in autonomous government spending would shift the aggregate expenditure line upward, leading to a multiplier effect on real GDP that is typically greater than the initial increase in spending, hence an increase by more than $100.

Exhibit 11-2 -Refer to the Graph in the Exhibit.Consider an Economy Characterized