Suppose the government increases its purchases by Rs16 billion. If the multiplier effect exceeds the crowding out effect, then?
AThe aggregate supply curve shifts to the right by more than Rs 16 billion
BThe aggregate demand curve shifts to the left by more than Rs 16 billion
Cthe aggregate supply curve shifts to the left by more than Rs 16 billion
DThe aggregate demand curve shifts to the right by more than Rs 16 billion
Correct answer
D. The aggregate demand curve shifts to the right by more than Rs 16 billion
Explanation
The correct answer is The aggregate demand curve shifts to the right by more than Rs 16 billion.