To illustrate the ultimate impact of the multiplier process when investment spending falls,we should
A)Shift the AD curve rightward once.
B)Shift the AD curve leftward twice,once for the autonomous change and second for the multiplier effect.
C)Shift the AD curve leftward and then rightward.
D)Shift the AD curve leftward and then shift the AS curve leftwarD.The first shift represents the initial drop in spending,and the second shift represents the cumulative drops in spending that result due to the multiplier.

Question

Quizplus · Accepted Answer

When investment spending falls, it leads to a decrease in AD (autonomous change) which results in a multiplier effect that causes AD to fall even further. Therefore, shifting the AD curve leftward twice, once for the initial drop and second for the multiplier effect, is the best choice to illustrate the ultimate impact of the multiplier process when investment spending falls.

To Illustrate the Ultimate Impact of the Multiplier Process When