Help question 40

To determine how much injections should decrease, we will use the multiplier concept.

Step 1: Identify the current and full employment GDP. From the graph:

• Current equilibrium Real GDP = $2500 billion.
• Full employment income (Yf) = $2000 billion.

Step 2: Calculate the required change in Real GDP ($\Delta \text{GDP}$). The economy needs to move from $2500 billion to$2000 billion. $\Delta \text{GDP} = \text{Full employment GDP} - \text{Current GDP}$ $\Delta \text{GDP} = 2000 - 2500 = -500 \text{ billion}$ This means Real GDP needs to decrease by $500 billion.

Step 3: Use the multiplier formula to find the change in injections. The multiplier ($k$) is given as 5. The formula for the multiplier is: $\Delta \text{GDP} = k \times \Delta \text{Injections}$ Rearranging to solve for $\Delta \text{Injections}$: $\Delta \text{Injections} = \frac{\Delta \text{GDP}}{k}$

Step 4: Substitute the values and calculate. $\Delta \text{Injections} = \frac{-500}{5} = -100 \text{ billion}$ The negative sign indicates a decrease. Therefore, injections should decrease by $100 billion.

The correct option is A.

The final answer is $\boxed{\text{A}}$.