In 2007, investment in France increased by 7 billion euros. Which of following occurs?
I. an upward shift in the AE curve
II. a leftward shift in the AD curve
III. an increase in the price level and real GDP in the short run
IV. an increase in the price level and no change in real GDP in the long run

Question

Quizplus · Accepted Answer

An increase in investment leads to an upward shift in the Aggregate Expenditure (AE) curve and an increase in Aggregate Demand (AD), causing a rise in the price level and real GDP in the short run. In the long run, the price level may increase, but real GDP remains unchanged due to the economy returning to its potential output.

In 2007, Investment in France Increased by 7 Billion Euros