If government spending increases by $100 million, leading to an overall increase in aggregate demand of $400 million, what is the most likely reason for this observed increase?

When the government spends more money, like the $100 million increase mentioned, it can lead to a larger boost in the economy, which is known as the multiplier effect. This happens because the initial spending creates income for businesses and workers, who then spend some of that money on goods and services. For example, if the government builds a new school, the construction workers and suppliers earn money and may spend it on things like groceries or cars, which helps other businesses. As this cycle continues, the total increase in demand can be much larger than the original amount spent by the government. In this case, the $400 million increase shows how effective government spending can be in stimulating economic activity.