Consider the economy of NoTax, where the government expenditure multiplier is 2.5.If the government desires to shift the AD curve rightward by $5 billion, the correct increase in government expenditure is

Question

Quizplus · Accepted Answer

The government expenditure multiplier formula is the change in GDP (ΔY) divided by the change in government spending (ΔG). Given a multiplier of 2.5 and a desired increase in AD of $5 billion, the calculation is: ΔY = Multiplier × ΔG, so $5 billion = 2.5 × ΔG, solving for ΔG gives $2 billion.

Consider the Economy of NoTax, Where the Government Expenditure Multiplier