Suppose the economy is in equilibrium. Now, suppose there is an increase in investment. As the economy adjusts to this increase in investment, we know that:

Question

Quizplus · Accepted Answer

In equilibrium, an increase in investment leads to an increase in income, which increases both consumption and saving, not a fall in either. The multiplier itself does not change; it is a constant based on the marginal propensities to consume and save.

Suppose the Economy Is in Equilibrium