Suppose a country institutes an investment tax credit and that leads to an initial increase in investment spending of $100 billion. Suppose the multiplier is 1.5 and the economy's real GDP is $5,000 billion. This action is

Question

Quizplus · Accepted Answer

The initial increase in investment spending of $100 billion will lead to a further increase in real GDP. Since the multiplier is 1.5, the increase in real GDP will be $150 billion (multiplier x initial increase in investment spending). Therefore, the aggregate demand curve will shift to the right by $150 billion.

Suppose a Country Institutes an Investment Tax Credit and That