The government increases its purchases by Rs 16 billion. If the multiplier effect is larger than the crowding-out effect, what happens?
Correct answer B. The aggregate demand curve shifts to the right by more than Rs 16 billion
Explanation
Government purchases raise aggregate demand. The multiplier enlarges the shift while crowding out reduces it, so if the multiplier dominates the curve moves right by more than the initial Rs 16 billion.
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