An increase in investment, combined with an increase in imports, would have what effect on aggregate demand?
A)AD would increase.
B)AD would decrease.
C)AD would stay the same.
D)AD could either increase or decrease, depending on which change was of a greater magnitude.

Question

An increase in investment, combined with an increase in imports, would have what effect on aggregate demand?
A)​AD would increase.
B)​AD would decrease.
C)​AD would stay the same.
D)​AD could either increase or decrease, depending on which change was of a greater magnitude.

Quizplus · Accepted Answer

An increase in investment would increase aggregate demand (AD) because investment is a component of AD. However, an increase in imports would decrease AD since it represents spending on foreign goods rather than domestic production. Therefore, the net effect on AD depends on which effect is stronger, making D the correct answer.

An Increase in Investment, Combined with an Increase in Imports