In a simple macro model with government and demand-determined output,to raise equilibrium national income by $100 billion,G must be
A)raised by $100 billion.
B)raised by $100 billion times the simple multiplier.
C)raised by $100 billion divided by the simple multiplier.
D)lowered by $100 billion times the simple multiplier.
E)lowered by $100 billion divided by the simple multiplier.

Question

Quizplus · Accepted Answer

To raise equilibrium national income by a certain amount, government spending must be increased by that amount divided by the simple multiplier. This is because the multiplier effect means that an initial change in spending will lead to a larger change in the national income.

In a Simple Macro Model with Government and Demand-Determined Output,to