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Figure: Circular-Flow Model
-(Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of it) and there is an increase in investment spending, which of the following is likely to happen?
A)a decrease in the nominal GDP
B)an increase in the nominal GDP
C)an increase in the unemployment rate
D)a decrease in the inflation rate

Question

Use the following to answer questions :
Figure: Circular-Flow Model 
-(Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of it) and there is an increase in investment spending, which of the following is likely to happen?
A)a decrease in the nominal GDP 
B)an increase in the nominal GDP 
C)an increase in the unemployment rate 
D)a decrease in the inflation rate

Quizplus · Accepted Answer

An increase in investment spending will lead to an increase in the flow of money in the product market, causing an increase in the nominal GDP. It will stimulate economic growth and potentially reduce unemployment. However, it may also cause an increase in the inflation rate, but no information is given about it.

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