-Suppose the price level is fixed. If investment increases by $1 trillion and the aggregate expenditure curve is shown in the figure above, in response equilibrium expenditure increases by ________.

Question

Quizplus · Accepted Answer

When the price level is fixed and investment increases, it leads to a multiplier effect on the economy. The aggregate expenditure curve shifts upward, leading to a more than proportional increase in equilibrium expenditure. The exact multiplier effect depends on the marginal propensity to consume (MPC), but typically, the increase in equilibrium expenditure is more than the initial increase in investment, suggesting an answer of $3 trillion if we assume a multiplier greater than 1.

-Suppose the Price Level Is Fixed