Use the Following to Answer Questions

question 210

Multiple Choice

Use the following to answer questions .
Exhibit: Aggregate Expenditures and Real GDP 2
-(Exhibit: Aggregate Expenditures and Real GDP 2) Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment. Consider a simple economy where AE = C + I_P, I_P is autonomous and the consumption function is given by C = $1,000 billion + 0.75Y. If potential real GDP is $9,000 billion, by how much must planned investment change to reach potential real GDP?

• A) I_P must increase by $250 billion.
• B) I_P must decrease by $250 billion.
• C) I_P must increase by $1,000 billion.
• D) I_P must decrease by $1,000 billion.

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