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nlexa [21]
3 years ago
10

Why does a​ $1 increase in government purchases lead to more than a​ $1 increase in income and​ spending? A. Through the governm

ent purchases​ multiplier, the​ $1 increase in government spending will lead to a decrease in aggregate demand and national​ income, which will lead to an increase in induced spending. B. Through the government purchases​ multiplier, the​ $1 increase in government spending will lead to a decrease in aggregate demand and national​ income, which will lead to a decrease in induced spending. C. Through the government purchases​ multiplier, the​ $1 increase in government spending will lead to an increase in aggregate demand and national​ income, which will lead to a decrease in induced spending. D. Through the government purchases​ multiplier, the​ $1 increase in government spending will lead to an increase in aggregate demand and national​ income, which will lead to an increase in induced spending.
Business
1 answer:
MArishka [77]3 years ago
8 0

Answer:

D. Through the government purchases​ multiplier, the​ $1 increase in government spending will lead to an increase in aggregate demand and national​ income, which will lead to an increase in induced spending.

Explanation:

We know,

Multiplier = Changing real equilibrium GDP ÷Change of government spending.

If we increase the multiplier, government spending will lead to an increase in aggregate demand that is potential GDP is higher than actual GDP and national​ income, which will lead to an increase in induced spending. Therefore option D is the correct answer as options A, B, and C do not meet the requirements.

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Where:

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Let plug in the formula

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