Suppose the economy's multiplier is 2.Other things equal, a $25 billion decrease in government expenditures on national defence will cause equilibrium GDP to:
A)decrease by $50 billion.
B)decrease by $150 billion.
C)remain unchanged since spending on military goods is unproductive and usually wasteful.
D)decrease by $25 billion.

Question

Quizplus · Accepted Answer

The multiplier effect means that a change in spending will have a multiplied impact on the equilibrium GDP. With a multiplier of 2, a $25 billion decrease in government spending will lead to a $50 billion decrease in GDP (25 billion x 2 = 50 billion).

Suppose the Economy's Multiplier Is 2