Consider a small economy that is closed to trade, so its net exports are equal to zero. Suppose that the economy has the following consumption function, where C is consumption, Y is real GDP, I is investment, G is government purchases, and T stands for net taxes: C= 25 + 0.75∗ (Y−T).

Suppose G = $130 billion, I = $60 billion, and T = $20 billion.

Given the consumption function and the fact that, in a closed economy, total expenditure can be calculated as Y=C+I+GY=C+I+G, the equilibrium output level is billion.

Suppose the government purchases are reduced by $100 billion. The new equilibrium level of output will be equal to $ billion.

Based on the effect of the change in government purchases on equilibrium output, you can tell that this economy's spending multiplier is equal to

1. The Equilibrium Output level can be calculated as;

Y = C+I+G

Y = (25 + 0.75∗ (Y−T)) + I + G

Y = ( 25 + 0.75∗ (Y−20)) + 60 + 130

Y = 25 + 0.75Y - 15 + 190

0.25Y = 200

Y = 200/0.25

Y = $800 billion

2. Government spending reduces by $100 billion.

= 130 - 100

=30

Y = (25 + 0.75∗ (Y−T)) + I + G

Y = ( 25 + 0.75∗ (Y−20)) + 60 + 30

Y = 25 + 0.75Y - 15 + 90

0.25Y = 100

Y = 100/0.25

Y = $400 Billion

3. Multiplier =

=

= 4

answer; i believe the answer you are searching for is (minimum payment)

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