Question

Suppose that the government is currently in a recession and elected officials have reached a conclusion that fiscal stimulus is needed. A new fiscal stimulus law (that was just passed) will involve spending $150 billion. Economists have informed you that the spending multiplier in the economy is 2.5 What is the total macroeconomic impact of the fiscal stimulus?

Answer 1

The total macroeconomic impact of the fiscal stimulus is $375 billion.

Step-by-step explanation:

In macroeconomics, a sending multiplier refers to a propositional factor that has a primary function of measuring the extent of the effect of a change in gross domestic product (GDP) as a result of a change in expenditure.

In order to determine the total macroeconomic impact of the fiscal stimulus, we just need to obtain the product of the spending and multiplier as follows:

Total macroeconomic impact = Spending * spending multiplier ............ (1)

Where;

Spending = $150 billion

Spending multiplier = 2.5

Substituting the values into equation (1), we have:

Total macroeconomic impact = $150 billion * 2.5 = $375 billion

Therefore, the total macroeconomic impact of the fiscal stimulus is $375 billion.