Other things equal, an improvement in the expected rate of net profit would:
A) Reduce the price level and unemployment
B) Decrease the interest rate and cause aggregate demand to increase
C) Increase consumption and net exports, causing aggregate demand to shift rightwards
D) Increase investment spending, real GDP, and the price level

Question

Quizplus · Accepted Answer

An improvement in the expected rate of net profit would lead to an increase in investment spending, as firms will be more willing to invest in profitable ventures. This increase in investment spending will lead to an increase in real GDP through the multiplier effect. Additionally, this increase in investment spending and output will put upward pressure on the price level. Hence, D is the best choice.

Other Things Equal, an Improvement in the Expected Rate of Net