Question

Assume the mpc is 2/3. if government spending decreases by $6 billion, equilibrium gdp will:

Answer 1

To calculate the decrease in the GPD, we will have to multiply the decline in the government's spending by the multiplier.

Since the MPC is 2/3, therefore, the multiplier in this case is 3.

Therefore:
if government spending decreases by $6 billion, equilibrium gdp will decrease by 3*$6 billion = $18 billion