Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
An increase in investment spending can lead to a greater increase in GDP due to the multiplier effect.
B
Higher investment spending directly decreases GDP by increasing savings.
C
The marginal propensity to save (MPS) affects the size of the multiplier, influencing GDP changes.
D
Only government spending impacts GDP, while private investment has no effect.
E
A decrease in investment spending will always lead to a proportional decrease in GDP.
Understanding the Answer
Let's break down why this is correct
Answer
Investment spending plays a crucial role in determining the overall change in a country's Gross Domestic Product (GDP). When businesses invest in new equipment, buildings, or technology, it increases their production capacity, leading to higher output. This increase in production contributes directly to GDP growth because GDP measures the total value of goods and services produced in an economy. For example, if a factory invests in new machinery, it can produce more products, which means more sales and higher GDP. Therefore, a rise in investment spending usually leads to an increase in GDP, reflecting a healthy and growing economy.
Detailed Explanation
Investment spending can increase GDP, but none of the statements accurately describe how this happens. Other options are incorrect because This statement suggests that investment spending always increases GDP through a multiplier effect; This option claims that higher investment spending decreases GDP.
Key Concepts
Investment Spending
GDP Change
Multiplier Effect
Topic
Investment Spending and GDP Change
Difficulty
easy level question
Cognitive Level
understand
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