Suppose that the economy is at full employment, the price level is 100, and the multiplier is 2. Investment increases by $10 billion. In the short run ________, and in the long run ________.

Question

Quizplus · Accepted Answer

In the short run, the increase in investment leads to an increase in real GDP by the multiplier effect, which is less than $20 billion due to potential crowding out or inflationary pressures. In the long run, the economy returns to full employment, and real GDP does not change.

Suppose That the Economy Is at Full Employment, the Price