In the first economy (with MPC 0.5), the $30 billion decrease in investment causes equilibrium output to decrease by s billion. In the second economy (with MPC 0.70), the $30 billion decrease in investment causes equilibrium output to decrease by s billion. Therefore, a higher MPC is associated with a multiplier. Now, confirm your graphical analysis algebraically using the formula for the simple spending multiplier: Multiplier 1-MPC For the first economy with an MPC of 0.5, the effect of the $30 billion decrease in investment becomes the following: Change in Equilibrium Output Change in Aggregate Expenditure x Multiplier Using the same method, the multiplier for the second economy is 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 = 40+0.5 x (Y-T) Suppose G $115 billion, I- $50 billion, and T $10 billion. Given the consumption function and the fact that for a closed economy total expenditure can be calculated as Y C+1+G, the equilibrium output level is equal to s billion. Suppose the government purchases are increased by $150 billion. The new equilibrium level of output will be equal to 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