Exhibit 11-2

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

Question

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

Quizplus · Accepted Answer

A decrease in autonomous government spending would lead to a multiplier effect on the economy, reducing real GDP by more than the initial decrease in spending. The exact amount depends on the marginal propensity to consume and other factors, but without specific numbers, the principle that it decreases real GDP by more than the initial amount is key.

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