The economy is in equilibrium,TP = TE,and Real GDP is $4,000 billion.The MPC is 0.60,the multiplier is operative,and idle resources exist at each expenditure round.Autonomous investment spending rises by $13 billion.As a result,the __________ curve shifts __________,inventory levels unexpectedly __________,business firms __________ the quantity of goods and services they produce,and Real GDP __________ by __________.

Question

Quizplus · Accepted Answer

When autonomous investment spending rises by $13 billion, it will shift the TE curve upward. As a result, the inventory levels will unexpectedly increase, causing businesses to increase the quantity of goods and services they produce. Since the MPC is 0.60 and the multiplier is operative, Real GDP will rise by ($13 billion) x (1/0.40) = $32.5 billion. Therefore, choice D is the correct answer.

The Economy Is in Equilibrium,TP = TE,and Real GDP Is