If the government spends an extra $5 billion on goods and services, GDP will:
A)go up by $5 billion.
B)remain unchanged.
C)increase by less than $5 billion.
D)increase by more than $5 billion.

Question

Quizplus · Accepted Answer

The increase in government spending of $5 billion will not just impact the production of goods and services by the government sector, but will also have a cumulative effect as these businesses in turn buy raw materials, pay their employees, etc. This multiplier effect could potentially increase GDP by more than $5 billion.

If the Government Spends an Extra $5 Billion on Goods