When government spending is increased, the amount of the increase in aggregate demand primarily depends on:
A) The average propensity to consume
B) The size of the multiplier
C) Income taxes
D) Exchange rates

Question

Quizplus · Accepted Answer

The size of the multiplier determines how much the increase in government spending will boost aggregate demand. The larger the multiplier, the greater the impact on overall spending in the economy. The other choices may also have an effect on aggregate demand, but the multiplier is the primary determinant in this case.

When Government Spending Is Increased, the Amount of the Increase