If the multiplier is 4 and real GDP increases by $520 billion, the increase in investment spending must have been

Question

Quizplus · Accepted Answer

The multiplier effect formula is Multiplier = 1 / (1 - MPC) or Change in GDP = Multiplier * Change in Investment. Given a multiplier of 4, and an increase in GDP of $520 billion, we solve for Change in Investment: $520 billion = 4 * Change in Investment, which gives us Change in Investment = $520 billion / 4 = $130 billion.

If the Multiplier Is 4 and Real GDP Increases by $520