If the multiplier is 2 and investment spending falls by $5 billion, then equilibrium income:
A) increases by $10 billion.
B) increases by $2.5 billion.
C) decreases by $5 billion.
D) decreases by $10 billion.

Question

Quizplus · Accepted Answer

The multiplier effect amplifies changes in spending. With a multiplier of 2, a $5 billion decrease in investment spending leads to a $10 billion decrease in equilibrium income.

If the Multiplier Is 2 and Investment Spending Falls by $5