Chapter 21, Problem 2MCQ

To determine

The maximum effect on real GDP when there is $100 million increase in government spending

Answer to Problem 2MCQ

From the available options, the correct option is an increase of more than $100 million.

Explanation of Solution

As increase in government purchases or spendings on goods and services increase the real GDP as it stimulates the aggregate demand which means if there is a $100 million increase in government purchases of goods and services then the maximum effect on real GDP will be increase of $100 million.

Therefore, the correct option is b (an increase of more than $100 million) and all other options are incorrect because there will be no increase or decrease in GDP more or less than the increase in government spending.

Economics Concept Introduction

Introduction: The government purchases of goods and services are the expenditures which are made by any federal, local, or state government.