A permanent reduction in investment spending leads to

Question

Quizplus · Accepted Answer

Investment spending is a component of aggregate demand, and a permanent reduction in investment spending will lead to a decrease in aggregate demand. As a result, there will be a decrease in real national income, and the magnitude of the decrease will be greater than the reduction in investment spending. This is because the economy will experience a multiplier effect, where the initial reduction in investment spending will lead to a decrease in output, income, and consumption, which will then lead to further reductions in aggregate demand.

A Permanent Reduction in Investment Spending Leads to