Question

An increase in government spending shifts aggregate demand a. to the right. The larger the multiplier is, the farther it shifts. b. to the left. The larger the multiplier is, the less it shifts. c. to the right. The larger the multiplier is, the less it shifts. d. to the left. The larger the multiplier is, the farther it shifts.

Answer 1

Answer:

To the left, and the larger the multiplier is, the farther it shifts.

Explanation:

The aggregate demand AD) curve shifts when a variable other than the price level changes (that is to say, when an exogenous variable changes). In this case, the variable is government spending, and the change is an increase.

The AD curve shifts to the right when a change in the exogenous variable reduces the output of the economy, and shifts to the left when a change in the exogenous variable increases the output of the economy.

In Keynesian economics, an increase in government spending increases output, making the AD curve shift to the left.

The keynesian multiplier determines the level of the shift. If the multiplier is large, the AD curve will shift a lot.