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

Question

Quizplus · Accepted Answer

In the short run with fixed prices, an increase in investment leads to a multiplier effect, where the initial increase in spending leads to further increases in income and consumption, ultimately increasing real GDP by more than the initial investment amount.

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