If investment increases by $10 billion and the economy's MPC is 0.8, the aggregate demand curve will shift
A) leftward by $50 billion at each price level.
B) rightward by $10 billion at each price level.
C) rightward by $50 billion at each price level.
D) leftward by $40 billion at each price level.

Question

Quizplus · Accepted Answer

The increase in investment leads to a multiplier effect, calculated as 1/(1-MPC). With an MPC of 0.8, the multiplier is 1/(1-0.8) = 5. Therefore, a $10 billion increase in investment results in a $50 billion (10 billion * 5) rightward shift in the aggregate demand curve.

If Investment Increases by $10 Billion and the Economy's MPC