Question

if the multiplier is 5 and investment increases by $3 billion, equilibrium real gdp willincrease by:a. $2 billion.b. $3 billion.c. $8 billion.d. $15 billion.e. none of the above.

Answer 1

If the multiplier is 5 and investment increases by $3 billion, the equilibrium real GDP will increase by $15 billion, which is 5 times the initial increase in investment. The correct answer is d. $15 billion.

Step-by-step explanation:

In an economic context, if the multiplier is 5 and investment increases by $3 billion, equilibrium real GDP will increase by $15 billion. The multiplier effect describes how an initial change in spending leads to a larger change in overall economic activity.

This is due to the fact that one person's spending becomes another person's income, which they then spend, and the cycle continues. An initial increase in investment of $3 billion with a multiplier of 5 would lead to an increase in equilibrium real GDP of:

Initial Investment Increase * Multiplier = Increase in Equilibrium Real GDP

$3 billion * 5 = $15 billion

Therefore, the correct answer is d. $15 billion.