If the spending multiplier is equal to 4, then a $25 initial increase in investment spending will lead to a:
A) $100 increase in real GDP.
B) $1 decrease in real GDP.
C) $1 increase in real GDP.
D) $100 decrease in real GDP.

Question

Quizplus · Accepted Answer

A spending multiplier of 4 means that the initial increase in investment spending will lead to a total increase in real GDP of 4 times that amount. Therefore, a $25 initial increase in investment spending will lead to a $100 increase in real GDP.

If the Spending Multiplier Is Equal to 4, Then a $25