If the spending multiplier is equal to 5, then a $1 initial increase in investment spending will lead to a:
A)5 percent decrease in real GDP.
B)5 percent increase in real GDP.
C)$5 decrease in real GDP.
D)$5 increase in real GDP.
E)0.05 percent increase in real GDP.

Question

Quizplus · Accepted Answer

The spending multiplier indicates how much total GDP will increase for a given initial increase in spending. If the multiplier is 5, a $1 increase in investment spending will lead to a $5 increase in real GDP.

If the Spending Multiplier Is Equal to 5, Then a $1