Question

If the multiplier of government spending is 1.30 and government spending is increased by $150 billion, claculate the amount by which the demand curve will ultimatley shift

Answer 1

If the multiplier of government spending is 1.30 and government spending is increased by $150 billion, -165billion the amount by Shift of the demand curve will ultimately shift.

The spending multiplier algebra can be used to determine how much government spending would need to increase to bring the economy back to potential GDP when full employment occurs. Total Expenditure = C + I + G + (X - M).

The multiplier of government effect refers to the theory that government spending intended to stimulate the economy increases private spending, which in turn stimulates the economy. Essentially, this theory posits that government spending will bring additional income to households, leading to increased consumer spending.

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