Analyzing the Impact of a Government Spending Program

An economy experiences a sudden decrease in autonomous investment of €50 billion. This initial shock leads to a total decrease in the economy's output of €200 billion. Based on these figures, what is the value of the multiplier?

Determining the Initial Economic Shock

An economy is characterized by a spending multiplier of 2.5. Suppose that business pessimism leads to a €30 billion decrease in private investment, while at the same time, the government initiates a public works program, increasing its spending by €20 billion. What is the total net change in the economy's output?

Variability and Limitations of the Multiplier in Practice