Suppose the economy is in long-run equilibrium and there is an increase in investment.As a result,real GDP will ________ in the short run,and ________ in the long run.
A)increase; increase further
B)increase; decrease to its initial value
C)decrease; decrease further
D)decrease; increase to its initial level

Question

Quizplus · Accepted Answer

In the short run, an increase in investment will lead to an increase in real GDP due to higher spending. However, in the long run, the economy will adjust back to its potential output, and real GDP will return to its initial level, as prices adjust.

Suppose the Economy Is in Long-Run Equilibrium and There Is