If the Spending Multiplier Equals 6 and Equilibrium Real GDP

question 14

True/False

If the spending multiplier equals 6 and equilibrium real GDP is $32 billion below potential real GDP, then total planned expenditures need to decrease by approximately $5.33 billion to close the recessionary gap.

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Definitions:

Adjustment

An entry made in accounting records to correct or allocate transactions properly.

Service Company

A service company is a business that earns revenue through the provision of services, as opposed to selling physical products.

Merchandise Company

A business that purchases and sells goods, often retail or wholesale, as its primary activity.

Form 1120S

A tax document used in the United States to report the earnings, losses, and dividends of S corporation shareholders.