A government facing that $100m gap with a multiplier of 4 injects the full $100m instead. What happens?

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Question

A government facing that $100m gap with a multiplier of 4 injects the full $100m instead. What happens?

Accepted Answer

Income rises by $400m, overshooting full employment by $300m — Award 1 mark. Working: $100m × 4. Multiplying instead of dividing overstates the requirement by a factor of the multiplier squared — here sixteen times.

Answer

Income is unchanged, because the injection was too large

Answer

Income rises by $25m and the gap remains

Answer

Income rises by $100m and the gap is exactly closed

Answer

Income rises by $400m, overshooting full employment by $300m

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