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Effect of the increase in investment

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Reference no: EM131955446

The marginal propensity to consume in an economy is 0.60.  Thus, if the price level is? fixed, a ?$500 increase in investment would be expected to increase real GDP by ?$ nothing. ?(Round your answer to the nearest? dollar.)

Now suppose that the economy is known to be at a level of GDP that is above full employment and that the price level is not fixed. If the? short-run aggregate supply curve? (SRAS) is positively? sloped, which of the following is the most likely effect of the increase in  investment??

A. Aggregate demand will? increase, but real GDP will not change.

B. Aggregate demand will? increase, and real GDP will increase by ?$1250

C. Aggregate demand will not? change, and real GDP will increase by less than ?$1250

D. Aggregate demand will? increase, and real GDP will increase by more than ?$1250

E. Aggregate demand will? increase, and real GDP will increase by less than ?$1250

Reference no: EM131955446

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