In the Keynesian-cross model, if government purchases increase by 100, then planned expenditures ______ for any given level of income.
A) increase by 100
B) increase by more than 100
C) decrease by 100
D) increase, but by less than 100

Question

Quizplus · Accepted Answer

In the Keynesian-cross model, government purchases directly increase aggregate expenditures (AE), which is the sum of consumption, investment, and government purchases. Therefore, an increase in government purchases by 100 will directly increase planned expenditures by 100 for any given level of income.

In the Keynesian-Cross Model, If Government Purchases Increase by 100