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:

Minimum Price

The lowest price at which a product or service can be sold, often set by law or regulation to protect producers or prevent unfair competition.

Break-Even Point

The point at which total costs and total revenues are equal, resulting in no net loss or gain for a business.

Shutdown Point

The level of output and price at which a company's revenue just covers its variable costs, below which the company would lose more money if it continued to operate.

Short Run

A period in economic analysis where at least one input is fixed and cannot change, influencing decision-making and production.