If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, potential output (Y*)equals 11,000, then government purchases must ________ to eliminate any output gap.
A)increase by 200
B)increase by 1,000
C)increase by 5,000
D)decrease by 200

Question

Quizplus · Accepted Answer

If the multiplier is 5, a 200-unit increase in government purchases results in a 1,000-unit increase in output. This closes the recessionary output gap of 1,000.

If Short-Run Equilibrium Output Equals 10,000, the Income-Expenditure Multiplier Equals