Question

If a $50 billion initial increase in spending leads to a $250 billion change in real gdp, howbig is the multiplier?

a. 1.0.
b. 2.5.
c. 4.0.
d. 5.0.

Answer 1

The spending multiplier is found by dividing the change in real GDP ($250 billion) by the initial increase in spending ($50 billion), resulting in a multiplier of 5.0. The correct answer is d. 5.0.

Step-by-step explanation:

The economic concept being asked about in the question is known as the spending multiplier. The spending multiplier represents the proportion by which real GDP changes in response to a change in autonomous expenditures. To calculate the multiplier, you divide the change in real GDP by the initial change in spending.

In this case, an initial increase in spending of $50 billion led to a change in real GDP of $250 billion. Therefore, the multiplier would be calculated as follows:

Multiplier = Change in GDP / Initial Increase in Spending

Multiplier = $250 billion / $50 billion = 5.0

Thus, the correct answer is d. 5.0.