A permanent increase in autonomous investment causes
A) a more than proportional increase in real Gross Domestic Product (GDP).
B) a proportional increase in real Gross Domestic Product (GDP).
C) a less than proportional increase in real Gross Domestic Product (GDP).
D) an offsetting change in saving that leaves real Gross Domestic Product (GDP) at the same level.

Question

Quizplus · Accepted Answer

Autonomous investment is investment spending that is not influenced by changes in income or the interest rate. Therefore, a permanent increase in autonomous investment will shift the aggregate demand curve to the right, leading to an increase in real GDP. However, because the economy is not operating at full capacity, the increase in real GDP will be more than proportional to the increase in autonomous investment due to the multiplier effect.

A Permanent Increase in Autonomous Investment Causes