Question: If investment expenditures decrease, what happens to aggregate demand and the aggregate demand curve? What happens to Real GDP? How does the Aggregate Demand multiplier

  1. If investment expenditures decrease, what happens to aggregate demand and the aggregate demand curve? What happens to Real GDP? How does the Aggregate Demand multiplier affect what happens?
  2. Describe two things that can increase the size of the aggregate demand multiplier.
  3. Explain how taxes in the US economy can be both an automatic fiscal policy and a discretionary fiscal policy.
  4. If the Federal Reserve wants to close a recessionary (deflationary) gap (real GDP is less than potential GDP), should it buy or sell government securities? Why?

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