Suppose That GDP (Y) Is 5,000

question 59

Multiple Choice

Suppose that GDP (Y) is 5,000. Consumption is given by the equation C = 500 + 0.5(Y - T) . Investment (I) is given by the equation I = 2,000 - 100r, where r is the real interest rate in percent. Government spending (G) is 1,000 and taxes (T) is also 1,000. When a technological innovation changes the investment function to I = 3,000 - 100r:

• A)I rises by 1,000 and r rises by 10 percentage points.
• B)I rises by 1,000 and r is unchanged.
• C)I is unchanged and r rises by 10 percentage points.
• D)I is unchanged and r rises by 15 percentage points.

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Definitions:

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