If the Multiplier in an Economy Is 5, a $20

question 67

Multiple Choice

If the multiplier in an economy is 5, a $20 billion increase in net exports will

• A) increase GDP by $100 billion.
• B) reduce GDP by $4 billion.
• C) decrease GDP by $100 billion.
• D) increase GDP by $20 billion.

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Definitions:

Initial Investment

The amount of money used to start a project, purchase an asset, or invest in a business venture.

Net Annual Cash Inflow

The difference between all cash received and all cash expended by a business in one year.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period of time, used in capital budgeting to analyze the profitability of an investment.

Rate of Return

A measure of the gain or loss generated on an investment relative to the amount of money invested.