When government purchases increase,the spending multiplier indicates the _____.
A)amount of movement along the aggregate demand curve
B)amount of movement along the aggregate supply curve
C)size of the rightward shift of the aggregate demand curve at a given price level
D)size of the rightward shift of the aggregate supply curve at a given price level
E)size of the expansionary gap

Question

Quizplus · Accepted Answer

The spending multiplier indicates the size of the rightward shift of the aggregate demand curve at a given price level. When government purchases increase, it leads to an increase in aggregate demand, which shifts the aggregate demand curve to the right. The size of this shift is determined by the spending multiplier, which is calculated by dividing 1 by the marginal propensity to consume (MPC).

When Government Purchases Increase,the Spending Multiplier Indicates the _____