Assume That an Economy's Spending Multiplier Is 4

question 106

Multiple Choice

Assume that an economy's spending multiplier is 4. If this economy is in equilibrium at $2,000 billion, then which one of the following actions will bring it to a full-employment equilibrium of $1,500 billion?

• A) $500 billion spending cut.
• B) $500 billion spending increase.
• C) $125 billion spending cut.
• D) $125 billion spending increase.

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Definitions:

Central Nervous System

The part of the nervous system consisting of the brain and spinal cord.

Brain

The complex organ located in the skull that is responsible for cognitive function, processing information, and controlling most of the activities of the body.

Spinal Cord

A long, thin, tubular structure made up of nervous tissue, which extends from the brainstem down the back, transmitting neural signals between the brain and the body.

Resting Potential

The difference in electric charge across the membrane of a neuron at rest, critical for the transmission of neural signals.