The government increases its spending by $10 billion. Aggregate demand will increase by how much? For this que

Question

The government increases its spending by $10 billion. Aggregate demand will increase by how much? For this question, ignore any open-economy effects.

A. Not enough information is available to assess the increase

B. More than $10 billion

C. $10 billion

D. Less than $10 billion

Answer 1

Actually, the correct answer is A.  It depends on whether the crowding out affect (less than 10 billion) or multiplier effect (more than 10 billion) is stronger.

Answer 2

B. More than $10 billion