The Short- Run Multiplier Is Equal to 3, Real GDP

question 322

Multiple Choice

The short- run multiplier is equal to 3, real GDP equals potential GDP of $8,000, and the price level is equal to 100. Suppose that government expenditures decrease by $200. The long- run effect of the decrease in government expenditures on real GDP is to change real GDP by

• A) a decrease of 600.
• B) an increase of 600.
• C) a decrease of $200 because the long- run multiplier is 1.
• D) nothing; that is, in the long run real GDP equals $8,000.

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