Suppose that Kim K decides to spend $30,000 on an American made purse instead of donating it to Haitian earthquake relief. Assume that the multiplier is 1.7. How much will GDP rise when Kim K buys her purse according to the multiplier effect? Would buying the purse increase America's GDP by more, less, or the same as donating the money to Haitian earthquake relief? Suppose she instead donated to tornado relief in Joplin, MO. Would buying the purse increase GDP by more, less, or the same amount as spending on tornado relief?
