If an increase in investment spending of $20 million results in a $200 million increase in equilibrium real GDP,then the multiplier is
A) 1.0.
B) 100.
C) 10.
D) 0.1.

Question

Quizplus · Accepted Answer

The multiplier is the change in equilibrium real GDP divided by the change in investment spending that caused the change. In this case, the multiplier would be:

Multiplier = Change in real GDP / Change in investment spending
Multiplier = $200 million / $20 million
Multiplier = 10

Therefore, an increase in investment spending of $20 million results in a $200 million increase in real GDP, giving a multiplier of 10.

If an Increase in Investment Spending of $20 Million Results