In a simple economy with no income taxes or imports, prices are constant and the slope of the AE curve is 0.8. In order to increase real GDP by $500 billion, then

Name: In a simple economy with no income taxes or imports, prices are constant and the slope of the AE curve is 0.8. In order to increase real GDP by $500 billion, then
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Quizplus · Accepted Answer

The multiplier is 1/(1-0.8) = 5. To increase GDP by $500 billion, investment needs to increase by $500 billion / 5 = $100 billion.

In a Simple Economy with No Income Taxes or Imports