A $200 million increase in investment spending will increase real GDP by more than $200 million.

Question

Quizplus · Accepted Answer

This is because of the multiplier effect, where an increase in investment spending leads to an increase in income and consumption, resulting in further increases in production and income. The multiplier effect can cause the total increase in real GDP to be greater than the initial increase in investment spending. The size of the multiplier effect depends on various factors, such as the marginal propensity to consume and the degree of spare capacity in the economy.

A $200 Million Increase in Investment Spending Will Increase Real