If government decreases its purchases by $20 billion and the MPC is 0.8, equilibrium GDP will decrease by $100 billion.

Name: If government decreases its purchases by $20 billion and the MPC is 0.8, equilibrium GDP will decrease by $100 billion.
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The spending multiplier is calculated as 1/(1-MPC), which in this case is 1/(1-0.8) = 5. Therefore, a $20 billion decrease in government purchases will lead to a $20 billion * 5 = $100 billion decrease in equilibrium GDP.

If Government Decreases Its Purchases by $20 Billion and the MPC