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

question 293

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

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Definitions:

Average Rate of Return

Calculates the average annual return on an investment over its lifetime, taking into account both the capital gains and any income received from the investment.

Estimated Average Annual Income

An approximation of the amount of money one is expected to earn on average each year, considering various income sources over a specified period.

Average Investment

The mean value of all investments held over a specific period, used to assess overall investment performance.

Estimated Average Annual Income

An approximation of the amount of money an individual or business expects to earn in an average year.