Suppose the multiplier effect for Japan is 0.8 for any $1 billion change in U.S.government purchases.Therefore, Japanese real GDP will rise by $8 billion when U.S.government spending rises by $10 billion.

Question

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The statement correctly applies the multiplier effect to Japan in response to a $10 billion increase in U.S. government spending. If the multiplier effect is 0.8, then the eventual increase in Japanese GDP will be 0.8 times the initial change in U.S. spending. Therefore, an increase of $10 billion in U.S. spending will lead to an increase of $8 billion in Japanese GDP.

Suppose the Multiplier Effect for Japan Is 0