Question

The economy is in a recession and the government wants to increase output. If the multiplier equals 3 and the government increases spending by 250, how much will output increase by?
(A) 50
(B) 100
(C) 200
(D) 750

Answer 1

Answer:

The correct answer is option D.

Explanation:

Because of recession the government wants to increase output.

The increase in government spending is equal to $250.

The size of the money multiplier is 3.

The increase in output will be

=$= government\ spending\ multiplier\times increase\ in\ spending$

=250\ \times\ 3

=750

So, the correct answer is option D.