Estimate the gdp impact of a positive change of govt

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Reference no: EM13203930

A.) Any change in the economy's total expenditures would be expected to translate into a change in GDP that was larger than the initial change in spending. This phenomenon is known as the multiplier effect. Explain how the multiplier effect works.

B.) You are told that 75 cents out of every extra dollar pumped into the economy goes toward consumption (as opposed to saving). Estimate the GDP impact of a positive change in government spending that equals $25 billion.

Reference no: EM13203930

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