If autonomous investment decreases by $60 billion, equilibrium real GDP demanded will
A)increase by $60 billion
B)decrease by $60 billion
C)decrease by ($60 billion) × MPC
D)decrease by $60 billion × (1 - MPC)
E)decrease by $60 billion/MPS

Question

Quizplus · Accepted Answer

The decrease in equilibrium real GDP demanded is calculated using the spending multiplier, which is 1/MPS (Marginal Propensity to Save). Therefore, the decrease in GDP is $60 billion divided by MPS.

If Autonomous Investment Decreases by $60 Billion, Equilibrium Real GDP