If a $100 billion increase in government spending results in a $500 billion increase in real GDP, then the value of the multiplier:
A) equals $400 billion.
B) equals 5.
C) equals 0.2.
D) cannot be determined.

Question

Quizplus · Accepted Answer

The multiplier is calculated by dividing the change in real GDP by the change in government spending. In this case, the multiplier is $500 billion / $100 billion = 5.

If a $100 Billion Increase in Government Spending Results in a $500