A $100 increase in autonomous government purchases has the same effect on the equilibrium level of real GDP as a $100 increase in autonomous investment spending would.

Question

Quizplus · Accepted Answer

Both autonomous government purchases and autonomous investment spending are components of aggregate demand. An increase in either type of spending will shift the AD curve to the right, leading to an increase in equilibrium level of real GDP. The size of the increase may differ due to differences in the spending multiplier, but the initial impact of $100 increase in either type of spending would be the same. Therefore, the statement is true.

A $100 Increase in Autonomous Government Purchases Has the Same