Use the following to answer questions:
-(Figure 7-1: Circular-Flow Model) Use Figure 7-1: Circular-Flow Model. If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of it) and there is a decrease in investment spending, holding everything else constant, which outcome is likely to occur?
A) an increase in the nominal GDP
B) an increase in the real GDP
C) an increase in the unemployment rate
D) an increase in the inflation rate

Question

Use the following to answer questions: 
-(Figure 7-1: Circular-Flow Model) Use Figure 7-1: Circular-Flow Model. If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of it) and there is a decrease in investment spending, holding everything else constant, which outcome is likely to occur?
A) an increase in the nominal GDP 
B) an increase in the real GDP 
C) an increase in the unemployment rate 
D) an increase in the inflation rate

Quizplus · Accepted Answer

A decrease in investment spending will lead to a decrease in the flow of money in the product market. This could cause firms to decrease production and lay off workers, ultimately leading to an increase in the unemployment rate.

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