Suppose the multiplier is 2.5 and investment increases by $20 billion. Starting at potential GDP, in the long run, equilibrium real GDP
A)increases by $50 billion.
B)increases by more than $50 billion.
C)decreases by less than $50 billion.
D)does not change.
E)increases by less than $50 billion.

Question

Quizplus · Accepted Answer

In the long run, equilibrium real GDP does not change because the economy returns to its potential GDP level, as any initial increase in GDP due to the multiplier effect is offset by adjustments such as changes in prices and wages.

Suppose the Multiplier Is 2