If the spending multiplier equals 6 and equilibrium real GDP is $32 billion below potential real GDP, then total planned expenditures need to decrease by approximately $5.33 billion to close the recessionary gap.

Question

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To close a recessionary gap, total planned expenditures need to increase, not decrease. With a spending multiplier of 6, an increase in expenditures of approximately $5.33 billion would be needed to close the $32 billion gap.

If the Spending Multiplier Equals 6 and Equilibrium Real GDP