The equilibrium price level is30 , and the equilibrium level of real output is$35 billion . Suppose that the government spending increases by $5 billion and the expenditure multiplier in this economy is 6. On the previous graph, use the purple points (diamond symbol) to illustrate the effect of the increase in government spending on the aggregate demand (New AD) curve. The change in government spendingincreases the equilibrium level of real output by$10 billion . The price level increase weakens the multiplier effect.
