Practicing Success
If the value of Government expenditure multiplier is 6, what will it imply? |
For an increase in government spending by 1,00,000, the equilibrium income will increase by 6,00,000. For an increase in government spending by 1,000, the equilibrium income will increase by 6,000. For an increase in government spending by Re 1, the equilibrium income will increase by 6 Rs. All of these |
All of these |
The correct answer is Option 4: All of these The government expenditure multiplier measures the change in equilibrium income (output) resulting from a change in government spending. In other words, the impact of a change in income following a change in government spending is called government expenditure multiplier. The government expenditure multiplier is, thus, the ratio of change in income (∆Y) to a change in government spending (∆G). In the above ques the value of multiplier is 6 making the income increase by 6 times. Here’s how each option fits the scenario:
|