Answer the question on the basis of the following information for a private closed economy: $\begin{array}{l}
\begin{array} { c c }
\underline{\text { Gross Domestic Product } }& \underline{\text { Consumption } }\
\$100& \$ 100 \
200 & 160 \
300 & 220 \
400 & 280 \
500 & 340 \
600 & 440
\end{array}\
\begin{array} { c c c }
\underline{\text { Expected Rate of Return }} & \underline{\text { Amount of Investment }} \
15 \% & \$ 0 \
12 & 40 \
9 & 80 \
6 & 120 \
3 & 160 \
0 & 200
\end{array}
\end{array}$ Refer to the information.In this economy,a 3 percentage point decrease in the interest rate will:
A) increase equilibrium GDP by $200.
B) increase equilibrium GDP by $50.
C) increase equilibrium GDP by $100.
D) decrease equilibrium GDP by $50.

Question

Answer the question on the basis of the following information for a private closed economy: $\begin{array}{l}
\begin{array} { c c } 
\underline{\text { Gross Domestic Product } }& \underline{\text { Consumption } }\
\$100& \$ 100 \
200 & 160 \
300 & 220 \
400 & 280 \
500 & 340 \
600 & 440
\end{array}\
\begin{array} { c c c } 
\underline{\text { Expected Rate of Return }} & \underline{\text { Amount of Investment }} \
15 \% & \$ 0 \
12 & 40 \
9 & 80 \
6 & 120 \
3 & 160 \
0 & 200
\end{array}
\end{array}$ Refer to the information.In this economy,a 3 percentage point decrease in the interest rate will:
A) increase equilibrium GDP by $200.
B) increase equilibrium GDP by $50.
C) increase equilibrium GDP by $100.
D) decrease equilibrium GDP by $50.

Quizplus · Accepted Answer

A decrease in the interest rate will increase investment spending and consumption, leading to an increase in aggregate demand and equilibrium GDP. The multiplier effect suggests that the change in GDP will be greater than the change in spending. In this case, the multiplier is estimated to be 3, so a 3% decrease in the interest rate will increase GDP by 3 x $33.3 = $100. Therefore, the correct answer is C.

Answer the Question on the Basis of the Following Information