The graph above indicates equilibrium E for a close economy without government spending. If the addition of government spending results in equilibrium F, which of the following is true?
A) Government spending is $300 and the multiplier is 5
B) Government spending is $100 and the multiplier is 5
C) Government spending is $100 and the consumption increase by $500
D) Government spending and GDP increase by $500 each
E) Consumption and GDP increase by $500 each
Ans: B) Government spending is $100 and the multiplier is 5
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What will be an ideal response?