If the value of Government expenditure multiplier is 6, what will it imply?
Answer & explanation
Correct answer: option 4
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:
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For an increase in government spending by 1,00,000, the equilibrium income will increase by 6,00,000.: This option is correct because if the multiplier is 6, then an increase in spending of 1,00,000 would result in a total increase in income of 6 times that amount (1,00,000 × 6 = 6,00,000).
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For an increase in government spending by 1,000, the equilibrium income will increase by 6,000.: This option is also correct. With a multiplier of 6, an increase in spending of 1,000 would result in an increase in income of 6,000 (1,000 × 6 = 6,000).
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For an increase in government spending by Re 1, the equilibrium income will increase by 6 Rs.: This option is correct as well. With a multiplier of 6, a change in spending of Re 1 would result in a change in income of 6 Rs (1 × 6 = 6).