Exhibit 12-2
-In an economy characterized by the aggregate expenditure line in Exhibit 12-2, how would a $100 decrease in autonomous government spending impact real GDP?
A)decrease real GDP by $200
B)decrease real GDP by $100
C)no impact on real GDP
D)increase real GDP by $100
E)increase real GDP by $200

Question

Exhibit 12-2 
-In an economy characterized by the aggregate expenditure line in Exhibit 12-2, how would a $100 decrease in autonomous government spending impact real GDP?
A)decrease real GDP by $200 
B)decrease real GDP by $100 
C)no impact on real GDP 
D)increase real GDP by $100 
E)increase real GDP by $200

Quizplus · Accepted Answer

The multiplier effect states that a change in autonomous spending will have a multiplied impact on real GDP. In this case, a $100 decrease in autonomous government spending will lead to a $200 decrease in real GDP.

Exhibit 12-2 -In an Economy Characterized by the Aggregate Expenditure Line in Expenditure