-In an economy, the multiplier is 3. If government expenditure increases by $1 million, then in the short run, the price level ________ and real GDP ________ $3 million

Question

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The multiplier effect indicates that an increase in government expenditure will lead to a larger increase in real GDP. With a multiplier of 3, a $1 million increase in government spending will increase real GDP by $3 million. However, the price level may rise due to increased demand, leading to an increase in real GDP by less than $3 million in real terms.

-In an Economy, the Multiplier Is 3