Question

If government spending increases by $4 billion and real gdp increases by $8 billion, the expenditure multiplier must be ________.

Answer 1

government spending increases by $4 billion and real GDP increases by $8 billion, the expenditure multiplier must be 2.0 .

There could be a multiplier effect as a result of the increased government spending. Aggregate demand will rise even more if government expenditure results in job growth for the unemployed because they will have more money to spend as a result. The long-term consequences of a government expanding its fiscal policy to increase equilibrium output, according to the neoclassical theory of the economy. Because any growth in aggregate demand will eventually be choked down by the flexible prices, it will not function.

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