In the short run,an increase in investment,ceteris paribus,shifts the
A) AD curve to the right,causing equilibrium price level to rise and equilibrium Real GDP to increase.
B) AD curve to the left,causing equilibrium price level to fall and equilibrium Real GDP to decrease.
C) SRAS curve to the right,causing equilibrium price level to fall and equilibrium Real GDP to increase.
D) SRAS curve to the left,causing equilibrium price level to rise and equilibrium Real GDP to decrease.

Question

Quizplus · Accepted Answer

An increase in investment will shift the aggregate demand (AD) curve to the right. This is due to the fact that investment is a component of AD. When investment increases, firms increase their output, which in turn increases employment and income. This leads to an increase in aggregate demand. The increase in AD results in an increase in equilibrium price level and equilibrium real GDP in the short run.

In the Short Run,an Increase in Investment,ceteris Paribus,shifts the