Assuming an upward-sloping AS curve,if an economy is at full employment and investment spending decreases while all other levels of spending remaining constant,then
A)A GDP gap emerges.
B)The price level increases.
C)Output increases.
D)The unemployment rate falls.

Question

Quizplus · Accepted Answer

With a decrease in investment spending while all other spending remains constant, total demand in the economy decreases. This leads to a decrease in the aggregate demand, causing the economy to move below its full employment level, thus creating a GDP gap. The other options do not accurately describe the immediate effects of a decrease in investment spending in this scenario.

Assuming an Upward-Sloping AS Curve,if an Economy Is at Full