When government expenditure rises by $250 million and the multiplier is 2, then ceteris paribus, GDP will eventually rise by:
A)$500 million.
B)$250 million.
C)$125 million.
D)$750 million.

Question

Quizplus · Accepted Answer

The multiplier effect indicates how much the GDP will increase as a result of an increase in government spending. With a multiplier of 2, a $250 million increase in government expenditure will lead to a $500 million increase in GDP (250 million * 2 = 500 million).

When Government Expenditure Rises by $250 Million and the Multiplier