A $2,000 decrease in investment will shift the aggregate expenditures curve down by:
A) exactly $2,000 and will decrease the equilibrium level of real GDP by exactly $2,000.
B) exactly $2,000 and will decrease the equilibrium level of real GDP by less than $2,000.
C) exactly $2,000 and will decrease the equilibrium level of real GDP by more than $2,000.
D) less than $2,000 and will decrease the equilibrium level of real GDP by less than $2,000.

Question

Quizplus · Accepted Answer

The aggregate expenditures curve will shift down by exactly $2,000 due to the decrease in investment, and this will decrease the equilibrium level of real GDP by more than $2,000 due to the multiplier effect, where initial changes in spending lead to larger changes in overall economic activity.

A $2,000 Decrease in Investment Will Shift the Aggregate Expenditures