In 2007, investment in France increased by 7 billion euros. Assume the price level was constant, the multiplier was 5 and the economy was at full employment. As a result, equilibrium expenditure

Question

Quizplus · Accepted Answer

According to the formula for calculating the change in equilibrium expenditure, the change in investment multiplied by the multiplier will give the change in equilibrium expenditure. Therefore, the change in equilibrium expenditure would be 7 billion euros multiplied by 5, which equals 35 billion euros. Since the economy is at full employment, there is no output gap, and the increase in expenditure would lead to an increase in production by the same amount, resulting in an increase in GDP. Therefore, the correct choice is C.

In 2007, Investment in France Increased by 7 Billion Euros