AP Macroeconomics Question 467: Answer and Explanation

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Question: 467

15. When a large increase in aggregate demand has an even greater increase in real GDP, economists refer to this as

  • A. the balanced budget multiplier.
  • B. the money multiplier.
  • C. the foreign substitution effect.
  • D. the wealth effect.
  • E. the spending multiplier.

Correct Answer: E


E-Because an injection of dollars into the circular flow goes through the economy several times, the impact on real GDP is multiplied.