Please show steps, I already have the answer. Thanks Refer to Figure 2.1A. The e

Question

Please show steps, I already have the answer. Thanks

Refer to Figure 2.1A. The economy is currently in its short-run equilibrium at Point E3. How much is the change
in government spending (G) required to get the economy to its full-employment output level?
A) $0.122 B) minus $0.200 C) minus $0.222 D) none of the above

Please show steps, I already have the answer. Thanks Refer to Figure 2.1A. The economy is currently in its short-run equilibrium at Point E3. How much is the change in government spending (G) required to get the economy to its full-employment output level? A) $0.122 B) minus $0.200 C) minus $0.222 D) none of the above

Explanation / Answer

Aggregate spending has to decrease by $2 (as Y3-Qf = 2). It decreases via multiplier = 1/(1-MPC) = 1/(1-0.9) = 1/0.1 = 10

So change in G required = Change in Y/Multiplier = -$0.200. Option b.

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