📚 Learning Guide
Investment Spending and GDP Change
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An increase in investment spending will always lead to a proportional increase in real GDP, regardless of the marginal propensity to save.

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Learning Path
Learning Path

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A

True

B

False

Understanding the Answer

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Answer

Investment spending is when businesses spend money to buy things like new machines or buildings, which helps them grow and produce more. When businesses invest more, they create jobs and increase demand for materials and services, which can boost the economy. However, the increase in real GDP may not be proportional to the initial increase in investment because it also depends on how much people save versus spend, known as the marginal propensity to save. For example, if a company invests $1 million and people save a lot of that money instead of spending it, the overall increase in GDP might be smaller than expected. Therefore, while investment spending generally helps the economy, the exact impact on GDP can vary based on saving behaviors.

Detailed Explanation

Investment spending does not always lead to the same increase in GDP. Other options are incorrect because Some might think that all investment spending directly boosts GDP.

Key Concepts

Investment Spending
Real GDP Change
Marginal Propensity to Save (MPS)
Topic

Investment Spending and GDP Change

Difficulty

medium level question

Cognitive Level

understand

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