With a Positively Sloped LM Curve, the Increase in GDP

question 45

Multiple Choice

With a positively sloped LM curve, the increase in GDP resulting from an increase in government spending

• A) is larger than the usual multiplier effect because the resulting lower interest rates promote a secondary expansion in investment activity.
• B) is smaller than the usual multiplier effect because the government has to reduce the money supply to pay for its new spending.
• C) is larger than the usual multiplier effect because the corresponding increase in the money supply provides a second stimulative effect.
• D) is smaller than the usual multiplier effect because the resulting higher interest rates cause a secondary contraction in investment activity.
• E) none of the above.

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