If the government raises its spending by Rs16 billion and the multiplier effect outweighs the crowding out effect, what will be the impact on the economy?

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The aggregate supply curve moves rightward by an amount exceeding Rs16 billionThe aggregate demand curve shifts leftward by more than Rs16 billionThe aggregate demand curve shifts rightward by an amount greater than Rs16 billionThe aggregate supply curve shifts leftward by more than Rs16 billionNo significant change occurs in aggregate demand or supply

Explanation

When government spending increases by Rs16 billion, if the multiplier effect is stronger than the crowding out effect, the overall demand in the economy rises by more than Rs16 billion. This causes the aggregate demand curve to shift to the right by a greater amount than the initial increase in government expenditure.