Starting at $30 billion less than full employment,if MPC is 2/3,what impact would a decrease in government purchases of $10 billion have on AD?
A)It would increase AD by $15 billion.
B)It would decrease AD by $30 billion.
C)It would decrease AD by $15 billion.
D)It would increase AD by $30 billion.

Question

Quizplus · Accepted Answer

The multiplier effect is calculated as 1/(1-MPC). With MPC = 2/3, the multiplier is 3. A $10 billion decrease in government purchases would decrease AD by 3 * $10 billion = $30 billion.

Starting at $30 Billion Less Than Full Employment,if MPC Is