Suppose the economy’s multiplier is 2. Other things equal, a $25 billion decrease in government expenditures on national defense will cause equilibrium GDP to:

A.  decrease by $50 billion.
B.  decrease by $150 billion.
C.  remain unchanged since spending on military goods is unproductive and usually wasteful.
D.  decrease by $25 billion.

ANSWER:

A.  decrease by $50 billion.