How Much Will GDP Change After a $400 Billion Decrease in Government Purchases, If the Multiplier is 1.25?
Real Gross Domestic Product (GDP) Expansion
Impact of GDP Expansion
A rising GDP indicates that the economy is expanding, which increases the resources accessible to citizens in the form of goods, services, wages, and profits. The demand for money will rise as the GDP rises because more people will need money to conduct the transactions required to acquire the new GDP. In other words, the effect of transaction demand causes a rise in the demand for real money.GDP Change Calculation
Change in GDP = Multiplier * Change in Government Purchases1.25 * (-$400 billion) = -398.75 billion
Conclusion
Hence, the GDP change after a $400 billion decrease in government purchases, if the multiplier is 1.25, will be -398.75 billion.How much will GDP change after a $400 billion decrease in government purchases, if the multiplier is 1.25?
The GDP change after a $400 billion decrease in government purchases, if the multiplier is 1.25 will be -398.75 billion.