If government expenditure on goods and services increases by $10 billion,then aggregate demand
A)increases by $10 billion.
B)increases by $10 billion multiplied by the government expenditure multiplier.
C)increases by $10 billion multiplied by the tax multiplier.
D)decreases by $10 billion.
E)decreases by $10 billion multiplied by the government expenditure multiplier.

Question

Quizplus · Accepted Answer

When government expenditure on goods and services increases, it directly adds to the aggregate demand. The government expenditure multiplier shows the magnitude of the total effect on aggregate demand. Therefore, aggregate demand increases by the amount of government expenditure multiplied by the government expenditure multiplier.

If Government Expenditure on Goods and Services Increases by $10