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 $\times$ MPC
E)increase by $100 billion/MPS

Question

Quizplus · Accepted Answer

The change in equilibrium real GDP demanded due to a change in autonomous investment is determined by the spending multiplier, which is 1/MPS (Marginal Propensity to Save). Therefore, an increase in autonomous investment by $100 billion will increase equilibrium real GDP by $100 billion/MPS.

If Autonomous Investment Increases by $100 Billion,equilibrium Real GDP Demanded ×\times×

If Autonomous Investment Increases by $100 Billion,equilibrium Real GDP Demanded $\times$