Question #71471
Suppose a country institutes an investment tax credit, and this leads to an increase in investment
spending of $100 billion. Suppose the multiplier is 1.5 and the economy’s real GDP is $5,000 billion.
A. In which direction will the aggregate demand curve shift and by how much?
B. Explain using a graph why the change in real GDP is likely to be smaller than the shift in the
aggregate demand curve
spending of $100 billion. Suppose the multiplier is 1.5 and the economy’s real GDP is $5,000 billion.
A. In which direction will the aggregate demand curve shift and by how much?
B. Explain using a graph why the change in real GDP is likely to be smaller than the shift in the
aggregate demand curve
Expert's answer
Aggregate demand will increase and shift to upward by (100*1.5) = 150 billions
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