Suppose the government embarks on an infrastructure program,spending $8 billion on the construction of new roads and bridges.What is the size of the multiplier if the AS curve is vertical?
A)0
B)greater than 1
C)less than 1
D)infinity
E)insufficient information to solve

Question

Quizplus · Accepted Answer

If the AS curve is vertical, it means that the economy has reached its potential output and any increase in aggregate demand will only result in higher prices, not output. Therefore, there will be no multiplier effect on output from the government's infrastructure program, and the multiplier will be 0.

Suppose the Government Embarks on an Infrastructure Program,spending $8 Billion