Because of the Multiplier Effect,if a Shock Causes Aggregate Demand

question 41

Multiple Choice

Because of the multiplier effect,if a shock causes aggregate demand to increase by $200 million,then the government should _____ in order to restore the economy back to its original growth rate.

• A) do nothing
• B) increase government spending by more than $200 million
• C) reduce government spending by less than $200 million
• D) increase government spending by $200 million and cut taxes by $200 million

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Definitions:

Price

The cost associated with acquiring a good, service, or asset.

Income Decreases

A situation where an individual's or household's earnings fall over a period, affecting their purchasing power and standard of living.

Choice Set

The collection of options or alternatives from which a decision-maker is able to choose in a decision-making process.

Marginal Utility

The additional satisfaction or utility received by a consumer from consuming one more unit of a good or service.