If the spending multiplier is 3 and the desired amount of increase in real GDP is $90 million, then by how much would government spending have to increase?
A) $270 million.
B) $90 million.
C) $30 million.
D) $0.

Question

If the spending multiplier is 3 and the desired amount of increase in real GDP is $90 million, then by how much would government spending have to increase?​
A) ​$270 million.
B) ​$90 million.
C) ​$30 million.
D) ​$0.

Quizplus · Accepted Answer

The spending multiplier formula is 1/(1-MPC) or simply the multiplier itself in this context. To find the increase in government spending needed to achieve a certain increase in GDP, divide the desired increase in GDP by the multiplier. Here, $90 million / 3 = $30 million.

If the Spending Multiplier Is 3 and the Desired Amount