According to Keynesian economics, which of the following is the most accurate statement of the relationship between changes in investment spending and the resulting change in GDP?

1. Increased spending leads to increased borrowing, which harms GDP growth.
2. Changes in investment spending led to proportionately larger changes in GDP.
3. Changes in investment spending change GDP by about the same amount.
4. Changes in investment spending do not change GDP in the long run.
5. Changes in investment spending led to proportionately smaller changes in GDP.

The slope of the consumption spending equation is determined by the ________.

1. tax rate
2. autonomous spending
3. marginal propensity to consume
4. interest rate
5. money supply

Suppose the MPC in country A is equal to 0.8. Investment spending in country A increases by $100. Answer the following questions based on this information.

1. By how much will real GDP change as a result of the increase in investment spending?
2. Suppose the MPC in country A is now 0.9. What will be the change in real GDP in this case?
3. Suppose the MPC in country A is now 0.95. What will be the change in real GDP in this case?
4. Using your answers to parts (a)–(c), specify the pattern that exists between the MPC and the effects of investment on real GDP and explain it in one or two sentences.