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

question 258

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 expenditure decreases by $200. The long-run effect of the decrease in government expenditure changes real GDP by

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

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