There has been a decrease in investment. As a result, real GDP will ________ in the short run, and ________ in the long run.Question 6Answera.decrease; increase to its initial levelb.increase; increases furtherc.decrease; decrease furtherd.increase; decrease to its initial value
Question
There has been a decrease in investment. As a result, real GDP will ________ in the short run, and ________ in the long run.Question 6Answera.decrease; increase to its initial levelb.increase; increases furtherc.decrease; decrease furtherd.increase; decrease to its initial value
Solution
The answer is a. decrease; increase to its initial level.
Here's why:
Step 1: Understand the relationship between investment and GDP Investment is a component of GDP. When investment decreases, it means that businesses are spending less on things like machinery, buildings, and other capital goods. This can lead to a decrease in production, which in turn can lead to a decrease in GDP.
Step 2: Short run impact In the short run, a decrease in investment will lead to a decrease in GDP. This is because less investment means less production, and less production means less GDP.
Step 3: Long run impact In the long run, however, the economy has the ability to adjust to changes. If investment decreases, it might lead to a temporary decrease in GDP. But over time, other components of GDP (like consumption, government spending, or net exports) could increase to compensate for the decrease in investment. As a result, GDP could increase back to its initial level.
Similar Questions
In the long run, an increase in the money supply will lead toResponsesA a decrease in velocity. a decrease in velocity.B an increase in velocity.an increase in velocity.C a decrease in real GDP.a decrease in real GDP.D an increase in real GDP.
A decrease in aggregate demand causes a decrease in ________ only in the short run, but causes a decrease in ________ in both the short run and the long run.Question 4Answera.real GDP; the price levelb.the price level; the price levelc.the price level; real GDPd.real GDP; real GDP
A decrease in the price level results in a(n) ________ in the quantity of real GDP demanded because a lower price level ________ consumption, investment, and net exports.Question 9Answera.decrease; decreasesb.decrease; increasesc.increase; increasesd.increase; decreases
6. Suppose Canada's economy is in a long-run equilibrium with real GDP equal to potential output.Now suppose there is a decrease in the Canadian price of all imported raw materials. In the shortrun, ________. In the long run, ________.A) real GDP and the price level both fall; real GDP is below its original level with a lower price levelB) real GDP and the price level both rise; real GDP is above its original level with a higher price levelC) real GDP and the price level both rise; real GDP returns to its original level with a higher price levelD) real GDP rises and the price level falls; real GDP and the price level return to their original levelsE) real GDP falls and the price level rises; real GDP is below its original level with a higher price
If real GDP falls from one period to another, we can conclude thatNone of these necessarily occursnominal GDP fell.prices decreased.inflation occurred.
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