When the equilibrium price level adjusts to an increase in autonomous investment spending, the impact of the multiplier effect resulting from that spending increase
A) will increase real GDP by an amount smaller than the multiplier effect would indicate.
B) will increase nominal GDP by an amount smaller than the multiplier effect would indicate.
C) will have no impact on the real GDP.
D) is only felt when there are changes in consumption.

Question

Quizplus · Accepted Answer

When the equilibrium level adjusts to an increase in autonomous investment spending, the multiplier effect may not be as strong as predicted because there may be leakages in the economy, such as imports and savings. As a result, the increase in real GDP may be smaller than the multiplier effect would suggest.

When the Equilibrium Price Level Adjusts to an Increase in Autonomous