If government expenditure rises by $54 billion and the multiplier in the economy is 1.5, then real GDP_____, and the IS curve shifts to the_____.
A)rises by $81 billion; right
B)rises by $36 billion; right
C)falls by $36 billion; left
D)falls by $54 billion; left

Question

Quizplus · Accepted Answer

According to the formula: ∆Y = ∆G x multiplier
∆Y = $54 billion x 1.5 = $81 billion
Therefore, real GDP rises by $81 billion. When G increases, the IS curve shifts to the right.

If Government Expenditure Rises by $54 Billion and the Multiplier