If autonomous investment decreases by $60 billion,equilibrium real GDP demanded will
A)increase by $60 billion
B)decrease by $60 billion
C)decrease by ($60 billion)$\times$ MPC
D)decrease by $60 billion $\times$ (1 - MPC)
E)decrease by $60 billion/MPS

Question

Quizplus · Accepted Answer

The multiplier effect shows that a change in autonomous investment will lead to a larger change in equilibrium GDP. The multiplier is 1/MPS (Marginal Propensity to Save), so the decrease in GDP will be $60 billion divided by MPS.

If Autonomous Investment Decreases by $60 Billion,equilibrium Real GDP Demanded ×\times×

If Autonomous Investment Decreases by $60 Billion,equilibrium Real GDP Demanded $\times$