An increase in planned investment causes
A) output to increase.
B) output to decrease, but by a smaller amount than the decrease in investment.
C) output to decrease, but by a larger amount than the decrease in investment.
D) output to decrease by an amount equal to the decrease in investment.

Question

Quizplus · Accepted Answer

Planned investment is a component of aggregate demand. When planned investment increases, it will shift the aggregate demand curve to the right. As a result, output will increase because firms will increase production to meet the higher demand for goods and services. Therefore, an increase in planned investment causes output to increase.

An Increase in Planned Investment Causes