Investment in 2017 rises by 100 (all figures are in billion dollars). GDP in 2017 does...

Investment in 2017 rises by 100 (all figures are in billion dollars). GDP in 2017 does not change. Also, Consumption (C) and Government purchases (G) do not change.

Which is most likely to happen?

GDP in 2018 will rise by 100.

Capital in 2018 will rise by 100.

Capital in 2017 will rise by 100.

Net exports in 2017 will rise by 100.

The real wage will rise in 2017.

Solutions

Expert Solution

The answer is (b) Capital in 2018 will rise by 100

Capital in 2018 = Capital in 2017 + investment in 2017

since investment increases by 100, capital in 2018 should increase by 100 (as long as depreciation is assumed to be 0)

All other options are incorrect as they do not directly follow from an increase in investment in 2017 by 100.

Rahul Sunny answered 1 year ago

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