Question

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

a. the exchange-rate effect
b. the crowding-out effect
c. the interest-rate effect
d. the multiplier effect

Answer 1

Answer:

d. the multiplier effect

Explanation:

The multiplier effect would make the aggregate demand shift further to the right than the amount by which government expenditures increase. The aggregate demand curve shifting to the right indicates an increase in the national income. Which is what the multiplier effect illustrates, that an increase in government spending causes a chain effect that leads to the national income increasing more than what was actually spent.