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

Quizplus · Accepted Answer

The multiplier is the ratio of the change in real GDP to the change in government expenditure. In this case, the multiplier is 3, which means that a $1 million increase in government expenditure will lead to a $3 million increase in real GDP. The price level will also rise, as the increase in government expenditure will lead to an increase in aggregate demand.

In an Economy, the Multiplier Is 3