Given a constant GDP gap, the higher the spending multiplier, the smaller will be the recessionary gap.

Question

Quizplus · Accepted Answer

The spending multiplier refers to the amount by which GDP increases for every unit increase in government spending. A higher spending multiplier means that an increase in government spending will lead to a larger increase in GDP. Therefore, if there is a constant GDP gap (i.e., a recessionary gap), a higher spending multiplier will help close this gap more quickly because the increase in government spending will lead to a larger increase in GDP, reducing the size of the gap.

Given a Constant GDP Gap, the Higher the Spending Multiplier