Assume there is no government or foreign sector. If the multiplier is 2, a $20 billion increase in planned investment will cause aggregate output to increase by
A) $5 billion.
B) $10 billion.
C) $20 billion.
D) $40 billion.

Question

Quizplus · Accepted Answer

The multiplier is given as 2, which means that the change in aggregate output is twice the change in investment. Therefore, a $20 billion increase in planned investment will cause a $40 billion increase in aggregate output (2*$20 billion).

Assume There Is No Government or Foreign Sector