Suppose the economy is in equilibrium when business firms decide to increase investment spending by $100 billion.According to the short-run macro model,what would be the effect on equilibrium real GDP?
A) There would be no effect;the increased investment spending would be offset by decreased spending in other sectors.
B) It would increase by $100 billion.
C) It would increase by more than $100 billion.
D) It would increase,but by less than $100 billion.
E) It would decline by $100 billion.

Question

Quizplus · Accepted Answer

In the short-run macro model, an increase in investment spending leads to a multiplied increase in equilibrium real GDP due to the multiplier effect, where initial spending leads to further rounds of spending.

Suppose the Economy Is in Equilibrium When Business Firms Decide