If the investment multiplier in an economy is 5, an increase in exports by $20 billion will:
A) increase GDP by any amount, since we do not know the investment multiplier.
B) increase GDP by $20 billion.
C) decrease GDP by $20 billion.
D) increase GDP by $100 billion.

Question

Quizplus · Accepted Answer

The investment multiplier formula is ΔY = multiplier * ΔI, where ΔY is the change in GDP, and ΔI is the change in investment (or in this case, exports). With a multiplier of 5 and an increase in exports by $20 billion, the GDP would increase by 5 * $20 billion = $100 billion.

If the Investment Multiplier in an Economy Is 5, an Increase