A permanent reduction in planned real investment spending leads to
A) a more than proportional increase in real GDP.
B) a more than proportional decrease in real GDP.
C) a less than proportional decrease in real GDP.
D) a proportional decrease in real GDP.

Question

Quizplus · Accepted Answer

A permanent reduction in planned real investment spending will result in a decrease in aggregate demand, as a decrease in investment spending will lead to a decrease in the production of goods and services. This will cause a more than proportional decrease in real GDP, as the decreased production and lower demand will ripple through the economy, resulting in lower incomes and reduced consumer spending.

A Permanent Reduction in Planned Real Investment Spending Leads to