If an increase in investment spending of $50 million results in a $400 million increase in equilibrium real GDP, then
A)the multiplier is 0.125.
B)the multiplier is 3.5.
C)the multiplier is 8.
D)the multiplier is 14.3.
E)the multiplier is 50.

Question

Quizplus · Accepted Answer

The multiplier is calculated as the ratio of the change in equilibrium GDP to the change in investment spending. Here, it is $400 million / $50 million = 8.

If an Increase in Investment Spending of $50 Million Results