A $1 million increase in investment spending will raise equilibrium output (real GDP) by:

Question

Quizplus · Accepted Answer

The multiplier effect will cause a $1 million increase in investment spending to have a greater impact on equilibrium output. The exact amount of the increase depends on the size of the multiplier, which is determined by the marginal propensity to consume among other factors. In general, the multiplier is greater than 1, so a $1 million increase in investment spending will lead to an increase in equilibrium output that is more than $1 million.

A $1 Million Increase in Investment Spending Will Raise Equilibrium