Answer to Question #71471 in Macroeconomics for ashley

Question

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

Answer 1

Aggregate demand will increase and shift to upward by (100*1.5) = 150 billions