Use the figure below to answer the following questions.
Figure 11.3.1
The economy shown in the graph does not engage in international trade and has no government.Planned aggregate expenditure equals the sum of consumption expenditure C) and investment I).
-Refer to Figure 11.3.1.If investment increases by $25 billion, then real GDP increases by
A)$50 billion.
B)$25 billion.
C)$125 billion.
D)$75 billion.
E)$100 billion.

Question

Use the figure below to answer the following questions.
  Figure 11.3.1
The economy shown in the graph does not engage in international trade and has no government.Planned aggregate expenditure equals the sum of consumption expenditure C) and investment I).
-Refer to Figure 11.3.1.If investment increases by $25 billion, then real GDP increases by
A)$50 billion. 
B)$25 billion. 
C)$125 billion. 
D)$75 billion. 
E)$100 billion.

Quizplus · Accepted Answer

The multiplier effect amplifies the initial increase in investment, leading to a larger increase in real GDP. If the multiplier is 4, then a $25 billion increase in investment results in a $100 billion increase in real GDP.

Use the Figure Below to Answer the Following Questions