Suppose autonomous investment decreases by $60 billion.How will the equilibrium real GDP demanded be affected?
A) It will increase by $60 billion.
B) It will decrease by $60 billion.
C) It will decrease by $60 billion × MPC.
D) It will decrease by $60 billion/MPS.

Question

Suppose autonomous investment decreases by $60 billion.How will the equilibrium real GDP demanded be affected?  
A) It will increase by $60 billion. 
B) It will decrease by $60 billion. 
C) It will decrease by $60 billion × MPC. 
D) It will decrease by $60 billion/MPS.

Quizplus · Accepted Answer

The decrease in autonomous investment will lead to a multiplied decrease in equilibrium real GDP demanded, calculated as the decrease in investment divided by the marginal propensity to save (MPS).

Suppose Autonomous Investment Decreases by $60 Billion