Question

A policymaker proposes that to raise the GDP the government should choose a policy from the following. Choose the policy that will lead to the highest rise in GDP.

A

Decrease Government spending by $100

B

Increase Government spending by $100

C

Increase Government spending by $100 and encourage investors to raise investment spending by $50

D

Decrease Government spending by $100 and encourage investors to raise investment spending by $150

Answer 1

Answer
Option C
the GDP increases if consumer spending, investment spending increases by the multiplier amount.
the decrease in government spending decreases GDP by $100 * multiplier
Increase Government spending by $100 which increases $100*multiplier
Increase Government spending by $100 and encourage investors to raise investment spending by $50
it increases by 150*multiplier
Decrease Government spending by $100 and encourage investors to raise investment spending by $150
it increases government spending by (150-100)*multiplier