Homework Answers
When the multiplier is 4, it means that an increase in government spending by $1 will increase the aggregate demand by $1*4 = $4. This means that with an increase in government expenditure by $1, the aggregate demand curve shifts right by $4.
So a $15 billion increase in government expenditure will increase the aggregate demand by
4*15 billion
= $60 billion.
Hence the aggregate demand curve will shift to the right by $60 billion. So option 4 is the correct answer.
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