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 50.

Question

Quizplus · Accepted Answer

The multiplier is calculated as the change in equilibrium GDP divided by the change in investment spending. Therefore, a $400 million increase in GDP resulting from a $50 million increase in investment spending gives a multiplier of 8 ($400 million / $50 million = 8).

If an Increase in Investment Spending of $50 Million Results