Figure 27-12 -Refer to Figure 27-12. an Increase in Government Purchases Causes

question 11

Multiple Choice

Figure 27-12
-Refer to Figure 27-12. An increase in government purchases causes aggregate demand to shift ultimately from AD₁ to AD₂. In the new equilibrium at point B, both real GDP and the price level have increased. The increase in real GDP is ________ than that indicated by the multiplier effect with a constant price level.

• A) equal to
• B) less than
• C) greater than
• D) There is insufficient information given here to draw a conclusion.

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Definitions:

Money Supply Growth

The rate at which the amount of money available in an economy increases over a specific period of time.

Inflation

The rate at which the general level of prices for goods and services is rising, eroding purchasing power over time.

Adverse Supply Shock

An unexpected event that suddenly decreases the supply of a commodity or service, potentially leading to higher prices and lower quantity available.

Money Supply

The aggregate value of all monetary assets in an economy during a specific period.