In the Short Run with Fixed Prices, an Increase in Investment

question 317

Multiple Choice

In the short run with fixed prices, an increase in investment of $100 billion

• A) increases real GDP by $100 billion.
• B) increases real GDP by less than $100 billion.
• C) increases real GDP by more than $100 billion.
• D) decreases real GDP by $100 billion because of the decrease in induced expenditures.

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Definitions:

Incremental Cash Flows

The additional cash flow a company receives from undertaking a new project, considering only revenues and expenses directly related to the project.

Discount Rate

The interest rate used to determine the present value of future cash flows in discounted cash flow analysis.

Privately Owned

A business that is owned by private individuals or entities and not by the government or public investors.

Shares Of Stock

Units of ownership in a corporation that give shareholders a claim on part of the corporation's earnings and assets.