Suppose the Aggregate Demand Curve in Figure 10

question 28

Multiple Choice

Suppose the aggregate demand curve in Figure 10.2 increases by a total of $60 billion,from AD₂ to AD_0. Equilibrium GDP will

• A)Increase by less than $60 billion because some of the additional spending drives up prices.
• B)Increase by $60 billion.
• C)Increase by more than $60 billion because of the multiplier effect.
• D)Decrease because higher inflation causes unemployment.

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Definitions:

Aggregate Demand

The overall demand for all the goods and services in an economy, reflecting the economic activity and consumer spending power.

Keynes's Followers

Individuals or economists who support or develop the theories of John Maynard Keynes, relating to government intervention in the economy to manage aggregate demand.

Monetary Policy

Actions of a central bank, currency board, or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates.

MPC

Marginal Propensity to Consume, the proportion of an increase in income that gets spent on consumption.