When the government decides to increase its spending by $3 billion, Over time, the real GDP increased by $12 billion. The expenditure multiplier is 4.0. Hence, Option C is correct.
<h3>What is the expenditure multiplier?</h3>
With the help of the expenditure multiplier, one can see the impact of the changes that have occurred in autonomous spending. This will be calculated on the total spending and aggregate demand in the economy.
An illustration for better understanding is here:
Expenditure multiplier = Change in real GDP / Change in spending
Expenditure multiplier = 12 / 3
Expenditure multiplier = 4
Thus, the expenditure multiplier is equal to 4.0. Option C is correct.
Learn more about expenditure multiplier from here:
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