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21 May, 11:46

When government spending is increased, the amount of the increase in aggregate demand primarily depends on: 
A. The average propensity to consume
B. The size of the multiplier
C. Income taxes
D. Exchange rates

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Answers (1)
  1. 21 May, 12:11
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    Answer:The size of the multiplier

    Explanation: As we know that, increase in govt. expenditure can be calculated by dividing change in aggregate demand with the multiplier computed.

    The aggregate spending of Govt. increases when there is an increase in demand, an due to this multiplier effect the output in the economy increases by more than the aggregate demand.

    From the above we can conclude that option B is correct.
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Home » Business » When government spending is increased, the amount of the increase in aggregate demand primarily depends on: 
A. The average propensity to consume
B. The size of the multiplier
C. Income taxes
D. Exchange rates
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