|
We know that GDP = C + Ig + G +
Xn.
Assume GDP is currently
$400 billion:
GDP = C + Ig + G + Xn. = $400
If when the economy is at full
employment GDP equals $500 billion, then what increase in
investment spending (Ig) is needed to achieve full
employment?
ANSWER: Much less than
$100.
In this lesson you will learn how
an increase in spending (like an increase in investment)
is MULTIPLIED as it works its way through the
economy.
The muliplier can work in reverse as
well. A small decrease in spending will cause a big decrease
in GDP.
|
