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.
Correct Answer:
Verified
Correct Answer:
Verified
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