If the price level is constant and the slope of the AE curve is 0.75,a decrease in investment of $100 leads to a decrease in real GDP of

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Quizplus · Accepted Answer

The multiplier effect is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. Here, the slope of the AE curve is the MPC, which is 0.75. The multiplier is 1/(1-0.75) = 4. Therefore, a decrease in investment of $100 leads to a decrease in real GDP of $100 * 4 = $400.

If the Price Level Is Constant and the Slope of the AE