Question

The economy is in a recession and the government wants to increase output. If the multiplier equals 3 and the government increases spending by 250, how much will output increase by?

(A) 50
(B) 100
(C) 200
(D) 750

Answer 1

The correct answer is option D.

Step-by-step explanation:

Because of recession the government wants to increase output.

The increase in government spending is equal to $250.

The size of the money multiplier is 3.

The increase in output will be

=
`= government\ spending\ multiplier* increase\ in\ spending`

=250\ \times\ 3

=750

So, the correct answer is option D.