In the short run with fixed prices, an increase in investment of $100 billion
A) increases real GDP by less than $100 billion.
B) decreases real GDP because of the decrease in induced expenditures.
C) increases real GDP by more than $100 billion.
D) increases real GDP by $100 billion.

Question

Quizplus · Accepted Answer

In the short run with fixed prices, an increase in investment leads to a multiplied increase in real GDP due to the multiplier effect, which causes the total increase in GDP to be more than the initial investment.

In the Short Run with Fixed Prices, an Increase in Investment