Answer: We use the multiplier formula here,
[tex] Multiplier = \frac{1}{1-mpc}
= \frac{1}{1-0.75}
= \frac{1}{0.25}
= 4 [/tex]
Now, as multiplier is equal to
[tex] Multiplier = \frac{Change in GDP}{Change in G}
4 = \frac{Change in GDP}{-50}
Change in GDP = 4*(-50)
Change in GDP = - $200 [/tex]
Therefore, equilibrium GDP falls by $200.
