With an initial GDP of Rs.100 crores and autonomous investment increasing from Rs.30 crores to Rs.45 crores, a rise in GDP is anticipated.
Using the investment multiplier, if the initial saving is Rs.30 crores, the GDP will adjust to a new equilibrium of Rs.150 crores.
Therefore, option (d) is the correct answer.
Which of the following statements are correct about the IS curve?
(A) It shows the combination of the interest rate and the level of income such that the money market is in equilibrium.
(B) It is negatively sloped.
(C) The smaller the multiplier and the more sensitive investment spending is to changes in the interest rate, the steeper the IS curve.
(D) An increase in government purchases shifts the IS curve to the right.
Choose the correct answer from the options given below:
In the context of the Keynesian concept of a multiplier, a \(\$\)1 increase in government spending financed by a \(\$\)1 increase in taxes will cause equilibrium income to: