Suppose equilibrium income decreases by $600 as a result of a change in government spending.If the multiplier is 3, what is the change in government spending?

Question

Quizplus · Accepted Answer

We are given that the equilibrium income decreases by $600 as a result of a change in government spending. We need to find out the change in government spending that led to this decrease in equilibrium income.

We know that the multiplier is 3, which means that a change in government spending will have three times the effect on equilibrium income. 
So, the change in government spending can be calculated as follows:

Change in government spending = (Change in equilibrium income) / Multiplier
= -600 / 3
= -200

Therefore, the change in government spending is a decrease of $200. 
The correct answer choice is C).

Suppose Equilibrium Income Decreases by $600 as a Result of a Change