To determine how much the government needs to increase spending to achieve a desired increase in real GDP, we can use the concept of the spending multiplier. The spending multiplier is a factor that quantifies the change in GDP resulting from an initial change in government spending.
Given:
- Spending multiplier = 3
- Desired increase in GDP = [tex]$90 million
To find the required increase in government spending, we use the relationship between the desired GDP increase and the spending multiplier:
\[ \text{Increase in GDP} = \text{Increase in Government Spending} \times \text{Spending Multiplier} \]
We can rearrange this formula to solve for the increase in government spending:
\[ \text{Increase in Government Spending} = \frac{\text{Increase in GDP}}{\text{Spending Multiplier}} \]
Substituting the given values:
\[ \text{Increase in Government Spending} = \frac{90\ \text{million dollars}}{3} \]
\[ \text{Increase in Government Spending} = 30\ \text{million dollars} \]
Therefore, the government would need to increase its spending by $[/tex]30 million to achieve the desired increase in real GDP of [tex]$90 million.
The correct answer is:
d. $[/tex]30 million.
