Question

In: Economics

An increase in government spending shifts aggregate demand


An increase in government spending shifts aggregate demand 

a. to the right. The larger the multiplier is, the less it shifts 

b. to the left. The larger the multiplier is, the farther it shifts. 

c. to the left. The larger the multiplier is, the less it shifts. 

d. to the right. The larger the multiplier is, the farther it shifts.

Solutions

Expert Solution

To the right. The larger the multiplier is the farther it shifts

Government expenditure is a component of aggregate demand. So when government expenditure increases, aggregate demand also increases. Increase in the aggregate demand is shown by rightward shift. The government expenditure multiplier is the ratio of change is income to a change in government spending. When government spending increases the total income of the country increases as a result multiplier also increases. And the larger the multiplier is the farther it shifts.

Rahul Sunny answered 2 years ago
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