Figure 18-12

-Refer to Figure 18-12.An increase in government purchases causes aggregate demand to shift ultimately from AD₁ to AD₂.In the new equilibrium at point B,both real GDP and the price level have increased.The increase in real GDP is ________ than that indicated by the multiplier effect with a constant price level.

Question

Figure 18-12
 
-Refer to Figure 18-12.An increase in government purchases causes aggregate demand to shift ultimately from AD₁ to AD₂.In the new equilibrium at point B,both real GDP and the price level have increased.The increase in real GDP is ________ than that indicated by the multiplier effect with a constant price level.

Quizplus · Accepted Answer

The question states that both real GDP and the price level have increased in the new equilibrium at point B, which indicates that there has been some inflationary pressure. This suggests that there has been some crowding out of private investment due to higher interest rates, which would reduce the multiplier effect and result in a smaller increase in real GDP than would be expected with a constant price level. Therefore, the correct answer is B) less than.

Figure 18-12 -Refer to Figure 18-12.An Increase in Government Purchases Causes Aggregate