Use the following to answer questions .
Exhibit: Real GDP and the Multiplier

-(Exhibit: Real GDP and the Multiplier) Suppose the equilibrium level of real GDP at the prevailing price is $500 billion below potential real GDP. All else constant, by how much should autonomous aggregate expenditures be increased to reach potential output?
A) $150 billion
B) $200 billion
C) $400 billion
D) $500 billion

Question

Use the following to answer questions .
Exhibit: Real GDP and the Multiplier
 
-(Exhibit: Real GDP and the Multiplier) Suppose the equilibrium level of real GDP at the prevailing price is $500 billion below potential real GDP. All else constant, by how much should autonomous aggregate expenditures be increased to reach potential output?
A) $150 billion 
B) $200 billion 
C) $400 billion 
D) $500 billion

Quizplus · Accepted Answer

To close a $500 billion gap in real GDP, the increase in autonomous aggregate expenditures should be $200 billion if the multiplier is 2. This is because the change in GDP is equal to the multiplier times the change in autonomous expenditures.

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