If government spending increased by $100 billion and the MPS within the economy was 0.25, what would be the total impact on real GDP?
A)$25 billion increase
B)$75 billion increase
C)$133 billion increase
D)$400 billion increase

Question

If government spending increased by $100 billion and the MPS within the economy was 0.25, what would be the total impact on real GDP?
A)​$25 billion increase
B)​$75 billion increase
C)​$133 billion increase
D)​$400 billion increase

Quizplus · Accepted Answer

The spending multiplier is calculated as 1/MPS, which is 1/0.25 = 4. The total impact on GDP is the initial spending increase multiplied by the multiplier: $100 billion * 4 = $400 billion.

If Government Spending Increased by $100 Billion and the MPS