Exhibit 9-9
-In Exhibit 9-9,assume the economy is in equilibrium with real GDP of $5 trillion dollars.If aggregate expenditure (AE)increases by $1 trillion,we would expect the economy's equilibrium real GDP to
A)increase by $1 trillion
B)increase by more than $1 trillion
C)increase by less than $1 trillion
D)decrease by $1 trillion
E)remain unchanged

Question

Exhibit 9-9 
-In Exhibit 9-9,assume the economy is in equilibrium with real GDP of $5 trillion dollars.If aggregate expenditure (AE)increases by $1 trillion,we would expect the economy's equilibrium real GDP to
A)increase by $1 trillion 
B)increase by more than $1 trillion 
C)increase by less than $1 trillion 
D)decrease by $1 trillion 
E)remain unchanged

Quizplus · Accepted Answer

In Keynesian economics, an increase in aggregate expenditure (AE) leads to an increase in real GDP. The extent of the increase in real GDP depends on the multiplier effect, which is the ratio of the change in real GDP to the change in AE. The multiplier effect is greater than 1, meaning that a $1 trillion increase in AE will lead to an increase in equilibrium real GDP of more than $1 trillion. Therefore, the best answer is B.

Exhibit 9-9 -In Exhibit 9-9,assume the Economy Is in Equilibrium with Real