-Suppose the price level is fixed. If investment increases by $1 trillion and the aggregate expenditure curve is shown in the figure above, in response equilibrium expenditure increases by _ .
A) less than $1 trillion.
B) $1 trillion.
C) $3 trillion.
D) None of the above answers are correct.

Question

-Suppose the price level is fixed. If investment increases by $1 trillion and the aggregate expenditure curve is shown in the figure above, in response equilibrium expenditure increases by _ .
A) less than $1 trillion. 
B) $1 trillion. 
C) $3 trillion. 
D) None of the above answers are correct.

Quizplus · Accepted Answer

The multiplier effect causes the equilibrium expenditure to increase by more than the initial increase in investment. If the multiplier is 3, then a $1 trillion increase in investment leads to a $3 trillion increase in equilibrium expenditure.

-Suppose the Price Level Is Fixed