Suppose autonomous investment increases by $100 billion.How will the equilibrium real GDP demanded be affected?
A) It will increase by $100 billion.
B) It will increase by ($100 billion)/MPC.
C) It will increase by $100 billion × MPC.
D) It will increase by $100 billion/MPS.

Question

Suppose autonomous investment increases by $100 billion.How will the equilibrium real GDP demanded be affected?  
A) It will increase by $100 billion. 
B) It will increase by ($100 billion)/MPC. 
C) It will increase by $100 billion × MPC. 
D) It will increase by $100 billion/MPS.

Quizplus · Accepted Answer

The equilibrium real GDP demanded will increase by the change in investment divided by the marginal propensity to save (MPS), which is the multiplier effect.

Suppose Autonomous Investment Increases by $100 Billion