When the Equilibrium Price Level Adjusts to an Increase in Autonomous

question 103

Multiple Choice

When the equilibrium price level adjusts to an increase in autonomous investment spending, the impact of the multiplier effect resulting from that spending increase

• A) will increase real GDP by an amount smaller than the multiplier effect would indicate.
• B) will increase nominal GDP by an amount smaller than the multiplier effect would indicate.
• C) will have no impact on the real GDP.
• D) is only felt when there are changes in consumption.

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Definitions:

Budget Constraints

A financial restriction that limits the amount of money that can be spent on different categories of goods and services.

Optimum

The most favorable condition or level for growth, reproduction, or success.

Substitutes

Two goods for which an increase in the price of one leads to an increase in the demand for the other.

Complements

Two goods for which an increase in the price of one leads to a decrease in the demand for the other.