In the short run, with fixed prices and no imports and no income taxes, an increase in investment of
$100 billion
A) decreases real GDP because of the decrease in induced expenditures.
B) increases real GDP by less than $100 billion.
C) increases real GDP by more than $100 billion.
D) increases real GDP by $100 billion.

Question

Quizplus · Accepted Answer

In the short run, an increase in investment leads to a multiplied increase in real GDP due to the multiplier effect, which causes the initial investment to generate additional rounds of spending.

In the Short Run, with Fixed Prices and No Imports