Assume that the multiplier is 10.Full employment is considered to be at a GDP level of $500 billion.The current GDP is $400 billion.According to Keynesian macroeconomics,what should the government do to achieve full employment?
A) increase spending by $25 billion
B) increase spending by $10 billion
C) reduce spending by $25 billion
D) reduce spending by $100 billion

Question

Quizplus · Accepted Answer

According to Keynesian macroeconomics, the government should increase its spending by an amount equal to the output gap (the difference between potential GDP and actual GDP) divided by the multiplier.

Output Gap = potential GDP - actual GDP 
Output Gap = $500 billion - $400 Billion = $100 billion

Multiplier = 10

So, the government should increase its spending by $10 billion (output gap / multiplier) to achieve full employment.

Therefore, the correct answer is B.

Assume That the Multiplier Is 10