Suppose there is a $200 billion increase in government spending. We know that this increase in government spending will cause which of the following to occur?
A)an increase in equilibrium real GDP and an increase in the multiplier.
B)an increase in equilibrium real GDP and a reduction in the multiplier.
C)an increase in equilibrium real GDP and no change in the multiplier.
D)equilibrium real GDP will increase by exactly $200 billion.

Question

Quizplus · Accepted Answer

An increase in government spending typically increases equilibrium real GDP due to the multiplier effect, but the multiplier itself remains unchanged as it is determined by the marginal propensity to consume and other factors, not by the level of spending.

Suppose There Is a $200 Billion Increase in Government Spending