If the baseline level of investment expenditures, I₀, increases by $1 trillion, then investment spending will A) decrease by $1 trillion. B) increase by $1 trillion times the real interest rate. C) increase by $1 trillion. D) remain the same.

Question

Quizplus · Accepted Answer

An increase in the baseline level of investment expenditures directly increases investment spending by the amount of the increase, in this case, $1 trillion.

If the Baseline Level of Investment Expenditures, I0, Increases by $1

If the Baseline Level of Investment Expenditures, I₀, Increases by $1