Test Prep For AP® Courses
According to Keynesian economics, which of the following is the most accurate statement of the relationship between changes in investment spending and the resulting change in GDP?
- Increased spending leads to increased borrowing, which harms GDP growth.
- Changes in investment spending led to proportionately larger changes in GDP.
- Changes in investment spending change GDP by about the same amount.
- Changes in investment spending do not change GDP in the long run.
- Changes in investment spending led to proportionately smaller changes in GDP.
The slope of the consumption spending equation is determined by the ________.
- tax rate
- autonomous spending
- marginal propensity to consume
- interest rate
- money supply
Suppose the MPC in country A is equal to 0.8. Investment spending in country A increases by $100. Answer the following questions based on this information.
- By how much will real GDP change as a result of the increase in investment spending?
- Suppose the MPC in country A is now 0.9. What will be the change in real GDP in this case?
- Suppose the MPC in country A is now 0.95. What will be the change in real GDP in this case?
- Using your answers to parts (a)–(c), specify the pattern that exists between the MPC and the effects of investment on real GDP and explain it in one or two sentences.