FIGURE 23-5
-Refer to Figure 23-5.Suppose that an increase in autonomous investment caused the AD curve to shift to the right,as shown.If the simple multiplier in this model is 4,then how much was the increase in investment?
A)30
B)40
C)50
D)12
E)not enough information to know

Question

FIGURE 23-5
-Refer to Figure 23-5.Suppose that an increase in autonomous investment caused the AD curve to shift to the right,as shown.If the simple multiplier in this model is 4,then how much was the increase in investment?
A)30 
B)40 
C)50 
D)12 
E)not enough information to know

Quizplus · Accepted Answer

We can see from the diagram that the AD curve has shifted from AD to AD', causing an increase in equilibrium output from Y to Y'. Using the simple multiplier model, we can calculate the amount of the shift by multiplying the initial change in autonomous investment by the multiplier. In this case, the shift is from Y to Y', which is a change in output of 50. If the multiplier is 4, then the initial change in investment must have been 50/4 = 12.5. However, since investment spending must be a whole number, the closest answer choice is C, 50.

FIGURE 23-5 -Refer to Figure 23-5.Suppose That an Increase in Autonomous Investment