If autonomous investment increases by $100 billion, equilibrium real GDP demanded will
A)increase by $100 billion
B)not change
C)increase by ($100 billion)/MPC
D)increase by $100 billion × MPC
E)increase by $100 billion/MPS

Question

Quizplus · Accepted Answer

The increase in equilibrium real GDP demanded is determined by the spending multiplier, which is 1/MPS (Marginal Propensity to Save). Therefore, the increase in GDP is $100 billion divided by MPS.

If Autonomous Investment Increases by $100 Billion, Equilibrium Real GDP