The Federal Reserve econometric model estimates that a 1 percent increase in government spending, with the money supply increased to hold the interest rate constant, will
A) increase real GDP by 3 percent in 3 years.
B) increase real GDP by 3 percent in 4 years.
C) increase real GDP by 1 percent 2 years.
D) have no effect on real GDP after 3 years.

Question

Quizplus · Accepted Answer

The Federal Reserve econometric model estimates that a 1 percent increase in government spending will increase real GDP by 3 percent in 3 years. This indicates that there is a positive multiplier effect on the economy. However, it is important to note that this is an estimate and may vary depending on various economic factors.

The Federal Reserve Econometric Model Estimates That a 1 Percent