Suppose that investment increases by $10 billion. Which one of the following would reduce the effect of this increase in autonomous expenditure on equilibrium real GDP in the short run?
A)an increase in the marginal propensity to consume
B)a decrease in the marginal propensity to import
C)a decrease in the marginal tax rate
D)a steeper short-run aggregate supply curve
E)a flatter short-run aggregate supply curve

Question

Quizplus · Accepted Answer

A steeper short-run aggregate supply curve would reduce the effect of an increase in autonomous expenditure on equilibrium real GDP because it implies that output is less responsive to changes in demand, leading to smaller changes in real GDP.

Suppose That Investment Increases by $10 Billion