As a result of an initial increase in investment of $200 billion, real GDP increased by $800 billion.Given this information, the expenditure multiplier equals
A) 6.
B) 2.
C) 4.
D) 1/4.
E) $800 billion.

Question

Quizplus · Accepted Answer

The expenditure multiplier is calculated as the ratio of the change in real GDP to the initial change in investment. In this case, the initial increase in investment was $200 billion, and the resulting increase in real GDP was $800 billion. Therefore, the expenditure multiplier is 4 ($800 billion / $200 billion = 4). The correct answer is C.

As a Result of an Initial Increase in Investment of $200