Suppose That Government Spending on Defense Rises by $50 Billion

question 61

Multiple Choice

Suppose that government spending on defense rises by $50 billion. What happens to the aggregate demand curve if the multiplier is greater than 1?

• A) It shifts right by $50 billion at each price level.
• B) It shifts right by more than $50 billion at each price level.
• C) It shifts right by less than $50 billion at each price level.
• D) The aggregate demand does not shift; the aggregate supply curve shifts right by $50 billion at each price level.

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Definitions:

Factor Analysis

A statistical method used to describe variability among observed, correlated variables in terms of a potentially lower number of unobserved variables, called factors.

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High Correlation

A statistical measure indicating a strong relationship between two variables, where changes in one variable are closely linked to changes in the second.

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