If the government spending multiplier were 4.2, a $1 billion increase in government spending would raise GDP by
A) $2.1 billion after one year.
B) $1 billion after two years.
C) $3.2 billion after one year.
D) $4.2 billion after one year.

Question

Quizplus · Accepted Answer

The government spending multiplier of 4.2 implies that for every $1 increase in government spending, GDP will increase by $4.2. Therefore, a $1 billion increase in government spending would result in a $4.2 billion increase in GDP after one year.

If the Government Spending Multiplier Were 4