Question

In preparing thoir esimates of the stimulus package's effect on GDP Obama administration economists estmated a govemment purchass muipior of 1.57.This indicates that a purchases would increase equilbrum real GDP by $157 billion

A $1 bilion
B $10 billion
C. $100 billion
D. $157 billion

Answer 1

D. $157 billion

Step-by-step explanation:

Here is the correct question: In preparing their estimates of the stimulus package's effect on GDP, Obama administration economists estimated a government purchases multiplier of 1.57. This indicates that a $1 billion increase in government purchases would increase equilibrium real GDP by.

Given: Govemment purchase multiplier= 1.57

Amount of increase in government purchase= $1 billion.

Now, finding the change in real GDP.

Formula; Change in real GDP=
`multiplier* change\ in\ governement\ purchase`

Change in real GDP=
`1.57* \$ 1\ billion`

⇒ Change in real GDP=
`1.57* 1000000000`

∴ Change in real GDP=
`\$ 1.57\ billion`

Hence, Governement purchase of $1 billion would increase equilibrium real GDP by $1.57 billion.